eBusiness Weekly
Taking Stock with Kudzanai Sharara
On May 12, 2022, the Zimbabwe Stock Exchange (ZSE) fell into a bear market dropping 22 percent from its last record high on April 27, 2022.
It stayed in the bear territory till the 24th of the same month.
The downturn was on the back of measures put in place by Government to, among other things, prick the “market bubble”.
Finance and Economic Development Ministry claimed the stock market had formed a bubble and had to be pricked. Read how the stock market was pricked here https://bit.ly/3xa2Id6.
Following the announced measures the market reacted by selling off stocks at much lower prices.
In my view, the sell-off was driven by panicky investors and also by panicky speculators fearing that the long arm of the Financial Intelligence Unit was finally catching up with them, or fear they might not be able to pay back the money borrowed from banks to speculate on the ZSE.
The sell-off could also have been driven by cash squeezed corporates selling their treasury positions to fund their working capital following the suspension of bank lending. Whatever the reason, the stock market tumbled!
What is important is how real investors react to a bear market.
Bear markets can be damaging to one’s portfolio, but the impact depends greatly on one’s response.
Do you sell off your shares in panic, do you hold, or do you buy some more?
One basic fact about the market is that you have not made a profit or a loss until you dispose of your shares.
Selling in a market that is falling can be seen as locking profits for those who bought much lower and are able to sell while still in a profit position.
It could also mean locking one’s losses by selling at a price lower than the purchase price.
By selling, one is also denying their portfolio the ability to rebound unless they are able to buy back when the market bottoms.
The rebound
The last few days have seen the market turning again.
The All Share Index, which had dropped to 20 711.42 on May 24, 2022, is on a recovery path and had reached 23 390.66 on June 1, 2022.
That’s a 12,93 percent gain from its recent low.
While the recovery is not like a “Hockey Stick” but more of a “U-Shape”, all the same, the market has recovered as quickly as I expected.
My optimism stemmed from analysing the money that was still coming to the market.
Despite claims by authorities that they had closed the tap on speculative funds finding their way into the market, the ZSE still closed the month with the second-highest turnover of the year at $8,6 billion.
Before the new measures, the month of May had an average daily turnover of $403 million, but after the measures, the average daily turnover is $455 million.
Money continued to flow into the market.
This means measures put in place by government are either ineffective or a case of misdiagnosis.
But what do we learn from all this?
While nobody wants to see their wealth erode, bear markets provide buying opportunities that enhance long-term wealth.
When one is invested in a solid counter the more it falls, the cheaper it becomes, lifting prospective returns. This is where we say buy the dip.
But before buying the dip, first, analyse the fundamentals of the company to discover insights into how its stock may perform over the coming years.
A bear market can be a difficult time for investors but the savvy ones will not let such an opportunity go to waste.
