Staff Reporter.
MMC Capital, a local stock broking firm, has projected a bearish outlook of the Zimbabwe Stock Exchange (ZSE), which could be triggered by anxiety over the holding on the next general elections.
The brokerage firm said the ZSE, whose volumes have been largely driven by foreign investor participation, could lose out due to uncertainty over the polls, which ZANU-PF is pushing for this year amid resistance from rival political parties.
Apart from the elections, lack of clarity over the implementation of indigenisation and empowerment regulations compelling foreign-owned companies to dispose of 51 percent shareholding to locals over the next three years have again affected performance of the capital-starved exchange.
MMC Capital said there was a 50 percent chance that the ZSE market capitalisation (market cap) would close at US$3,3 billion.
Last year, the ZSE market cap closed the year at US$3,7 billion after shedding US$200 000 recorded in the prior year.
"This scenario assumes that unresolved political issues continue to hamper the inclusive government resulting in the dearth of portfolio capital inflows into the country. Liquidity challenges will persist whilst foreign investors will shun the local market on the back of the heightened political risk. This scenario also assumes that elections will be held in 2012 and will be as chaotic as the last elections in 2008," reads an outlook report prepared by the brokerage firm's research unit.
"We expect more political energies to be directed towards electioneering than growing the economy; we thus take a more conservative view on the 2012 growth rate than the 9,4 percent projected by the Ministry of Finance."
The Ministry of Finance projects strong growth underpinned by strong performance in the financial services sector (23 percent), mining (15,8 percent), tourism (13,7 percent) and agriculture (11,6 percent). Developments in agriculture this season, however, put a damper on the expected output in key crops like maize on the back of a poor rainfall season.
The report further states that there was a probability of 30 percent that the market would trade sideways should elections be held next year.
"The scenario also assumes that elections will be held in 2013. Competition for investment flows from the fixed income market is also assumed with institutions such as pension funds and insurance companies channeling most of their funds into money market assets to meet prescribed asset ratios as well as enjoy the real returns prevailing in the money market," the report stated. Based on the third scenario MMC Capital said there was a 20 percent probability that the exchange would be bullish this year. Should the bullish trend come true, MMC Capital projects a market cap of US$4 billion.
Revolutionary reforms which include the completion of the Central Securities Depository and demutualisation of the ZSE, the report stated, will ignite activity on the exchange
The scenario, MMC Capital said assumes that the socio-political environment would be peaceful and there will be no elections in 2012, liquidity will improve on trading efficiencies and foreign portfolio flows will improve.
"Our capital market expectations support a conservative equity investment strategy in 2012. "We thus recommend investors to seek exposure to low geared, well capitalised, dividend paying and low beta stocks that will preserve capital value and offer income returns in an uncertain investment environment. We recommend exposure in sectors such as the fast moving consumer goods, telecommunications and retail," reads the report.
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