eBusiness Weekly
Taking Stock
Kudzanai Sharara
After performing a spirited rebound in late May into early June, the stock market is zig-zagging again — struggling for direction.
On Wednesday, most indices, including the All Share Index slid into the negative territory bringing to an end the recent rally and falling short of reaching recent peak levels.
Notably, the latest rally was driven by big cap stocks while the rest of the market remained rooted in the negative territory, particularly in US dollar terms.
The rally in heavyweight stocks is in a way justified by the results from some of the companies, Delta Corporation is a good example.
The beverages giant reported a stellar set of results, sales volumes being a major highlight.
The Sparkling Beverages sector witnessed more than sales volume growth as the market share also bounced to 59 percent from 47 percent.
Lager beer volume for the year grew by 38 percent to 1,863 million hectolitres (HLs) compared to the prior year attributed to consistent product supply with respect to both brand and pack.
Sorghum beer volumes in Zimbabwe grew 43 percent to 3,732 million HLS driven by improved access to the market, relaxation of Covid-19 restrictions, increased spending in rural markets driven by artisanal mining, and improved agricultural output.
To cap it all, approximately 60 percent of the firms’ revenue was in US$ terms, making it attractive to investors who are going to be paid part of the dividend in US dollar terms.
A few other firms had very plausible trading updates. Dairibord, for example, said its total sales volumes jumped 13 percent over prior year mainly driven by significant growth in beverages and foods.
In addition, exports grew by 94 percent compared to the same period last year while domestic foreign currency earnings closed the period 158 percent stronger.
In other words, 40 percent of the Group’s sales volume was in US dollars something which will cushion the company from chasing the US dollar scarce on the auction system and expensive on the parallel market.
After performing a spirited rebound in late May into early June, the stock market is zig-zagging again — struggling for direction
Market watchers would expect such plausible results to trigger positive market performance, but instead, the ZSE rally quickly fizzled out.
There is a possibility that sentiment is being hampered by continued economic headwinds such as the continued depreciation of the local currency and run-away inflation, factors that can severely constrain consumer demand in the short to medium term.
The outlook is important for investors, so if currency depreciation and inflation don’t start to slow down, the stock market could remain weaker for longer.
The stock market continues to get brickbats from Government officials and influential voices amid accusations of it being a haven of speculators.
However, the bigger question investors should be asking themselves is what does the future hold for listed entities.
Are they going to create value in the future or they are likely to remain trapped in a range? The market seems to be indeed trapped in a range, just like the Zimbabwe economy.
Around 2013, the ZSE was valued between US$5-US$6 billion.
Assuming investors buy the market, and also assuming the strategy is to buy and hold, then that investor has not enjoyed any value creation from the market. The ZSE is currently valued at US$5,4 billion using a parallel market rate of $550 per US$1.
Given valuations in 2013, and the current valuation, the ZSE seems like a value trap.
As the name implies, a value trap is a situation that leads investors to believe a stock is trading at a low valuation, when in fact it is not.
But that’s half the story. The sideways direction of stocks does not echo other parts of the financial markets, where inflation and currency depreciation should make the stock market attractive as a safe haven, a hedge.
The equities market is thus unlikely to remain choppy for longer unless there is reliable evidence that inflation is abating. Without inflation slowing down and savings rates remaining negative in real terms, the market remains a potential destination for cash looking for a home.
