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No respite for embattled Zimbabwe stocks

Liquidity on Zimbabwe’s bourse has been hit hard year-to-date, amid the domestic political funk and a lack of foreign-investor appetite for sub-Saharan Africa, more generally.

Zimbabwe Stock Exchange-R-600

The Zimbabwe Stock Exchange (ZSE) is unlikely to stage a recovery, after an 18% year-to-date plunge, before a shift in the political cycle kick-starts economic growth and market activity, say analysts.

According to data from the exchange, turnover of trades on the bourse totalled $153.66 million between January and July compared with $252.97 million within the same period last year.

“This fate hasn’t just affected Zimbabwe and we are seeing liquidity in bourses across the region fall, given the macroeconomic context,” says Jared Coetzer, institutional sales, pan-African equities at African Alliance.

“What is happening on the ZSE is a slightly delayed manifestation of what has been happening in the country and in the region more broadly, but until we see an inflow of dollars into the country, liquidity will be severely constrained.”

As of Wednesday, market capitalization for the Zimbabwean bourse fell 18% to $3.8 billion, down from $4.72 billion in January. In Nigeria, market capitalization for the exchange also decreased by 16.5% in dollar terms. In Kenya, the drop was 19% in dollar terms within the same period.

Investors are keeping well away from picking up any stock.
The situation isn’t looking good

Jared Coetzer, African Alliance

Slow economic growth, subdued domestic demand combined with the collapse in commodity prices and pressure on African currencies across the board have seen international investors firmly risk-off when it comes to African markets

In Zimbabwe, which has surprisingly one of the more liquid markets in the region, the political landscape has reinforced negative sentiment towards the country and resulted in lacklustre activity on the bourse. 

After the re-election of president Robert Mugabe after a disputed election in 2013, Zimbabwe’s economy has continued to struggle. Poverty and unemployment in the country are at pandemic levels and the drive towards indigenization of national industries and disputes over landownership has stunted economic growth.

According to data compiled by the African Development Bank, GDP growth has decelerated from 10.6% in 2012 to 4.5% in 2013 and 3.1% in 2014.

Stocks suffering

Stocks listed on Zimbabwe’s bourse have suffered. Telecommunications company Econet Zimbabwe has seen shares fall 45% year-to-date to 33 cents. Delta, Zimbabwe’s leading beer and soft drink company, has seen shares collapse 21% year-to-date to 99 cents.

“I don’t see any catalysts on the horizon that are going to kick-start activity on the exchange any time soon,” says Coetzer. "And even though valuations are cheap, and many of these companies are characterized by good management, investors are keeping well away from picking up any stock. The situation isn’t looking good.

“One thing investors will be waiting for is more clarity in terms of regulation in the banking and capital markets sectors. I don’t think we will see any major change in government policy until the 2018 elections. Until there is clarity on land ownership and indigenization, things will remain negative and we will unlikely see a return in foreign investment to the listed equity space.”

Zimbabwe’s exchange, which has used a paper-based trading platform since its beginnings in 1896, finally moved over to online trading earlier this month. ZSE was one of the few remaining stock exchanges in the world trading manually when management launched the automated trading system on July 6.

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