January not so good for stocks
On average the month of January seemed like a good one for investors after the stock market closed on a positive note. However, after accounting for inflation, transaction costs as well as currency depreciation, the gains were just nominal for most counters except fifteen.
At the close of trading on January 31, 2022, the ZSE All Share Index was 11,62 percent positive, while the ZSE Top 10 Index was the best performer with a 14,77 percent gain. The Small-Cap Index was the only one to fall, down 5,23 percent to 381,675.40.
At least 24 counters closed the month in the negative while 25 were positive. Only Cafca remained unchanged.
The inflation factor
Overall, the ZSE market capitalisation was up 11,9 percent to $1,47 trillion beating inflation which was recorded at 5,4 percent for the month. This means investors, on average, enjoyed real positive returns of approximately 6,5 percent.
Real returns are actual returns minus inflation (11,9 percent minus 5,4 percent). However, if we factor in transaction costs of above 5,12 percent, capital gains around 11,9 percent would be just nominal with minimal if any real return. Such high transaction costs act as a deterrent to investor participation.
The foreign currency auction system marked its return on the 18th of January following a break that started since the 14th of December 2021. On the first auction day of the year, the Zimbabwe dollar depreciated from a rate of 108.66 to the US dollar to a rate of 112.
The following week it depreciated again to 115.42 and this week it recorded further weakness at 116. 65. While the official exchange rate has dropped from 108.66 to 116.65, the Zimbabwe dollar has fallen from approximately 180 to between 220 and 250 on the parallel market.
On average a US$100 (valued at $22,000 using parallel market rates) invested in January this year and gaining 11,9 percent for the month to $24,618 would be valued at US$100 or less using parallel market rates.
However, at least 15 counters still managed to record real returns even after accounting for inflation and currency depreciation.
These included Delta up 15,5 percent, Econet (17,6 percent), Axia (44,4 percent), Cassava (33,5 percent), Innscor (28,8 percent), Nampak (21 percent), Natfoods (61,5 percent), SeedCo (21,3 percent), Simbisa (46,4 percent), Willdale (19,6 percent) and top riser Zeco up 316,7 percent. Any other stock outside these is in a real loss position unless the investor bought at troughs during the month.
Reasonable turnover
While the month’s turnover at $4 billion was closer to last year’s monthly average of $4,3 billion, volume of 82,402,101 shares was the lowest since January 2018. This could mean activity was subdued during the month, or that trading was concentrated in big-cap counters only.
The month of January also saw the introduction of the ZSE’s second exchange-traded fund (ETF) in form of the Morgan and Co multi-sector exchange-traded fund (ETF). This is in addition to the Old Mutual Top 10 ETF introduced in January last year. The introduction of the two ETFs is aimed at offering investors another option of investing in capital markets through pooled securities.
While Morgan and Co’s ETF is a welcome addition to the ZSE, it is the Old Mutual ETF that had an outstanding performance during the period under review. The Old Mutual ETF gained 72,17 percent in January doing better than the Morgan and Co ETF which gained 39,48 percent but also ahead of the overall market which was up by approximately 11,9 percent. At least $77,238,462.18 was invested in the two ETFs which now have a combined market value of $2,8 billion.
Foreigners still selling off
Like last year, foreign investors have started the year as net sellers after disposing $254 million worth of shares and only buying $52,6 million worth of shares. This has been the trend since 2020 when foreign investors started selling ZSE listed stocks following the opening up of a foreign currency repatriation window through the RBZ run foreign exchange auction system. Prior to that, foreign investors were buying into Old Mutual for onward selling on the Johannesburg Stock Exchange and the London Stock Exchange.
Corporate action
At the very end of the month of January, Starafrica Corporation released a plausible set of results for the half-year to September 31, 2021. The long-struggling manufacturing company seems to have finally put its act together.
Failure to meet local demand by its sugar division Goldstar Sugars Harare (GSSH) signals that company is slowly getting a piece of the market share long lost to its raw sugar supplier Tongaat Hullets.
During the period under review, the sugar division recorded a 46 percent improvement in sales due to the demand for white refined sugar in the market which the company said remains high.
The Country Choice Foods (CCF) division was also characterised by increased sales volume and continued investment into new machines and introduction of new products. This, as well as the payment of 99,9 percent of creditors under the Scheme of arrangement, should position the Group for further growth and share price appreciation on the ZSE.
TSL also came out with its year-end to October 2021 results which showed that the opening up of branches outside Harare as well as the decision to conduct business on behalf of tobacco merchants is paying dividends as its Tobacco Sales Floor recorded a 62 percent increase in the quantity of tobacco handled.
The company is also largely insulated from the vagaries of a depreciating local currency as most of its revenue is now in US dollars. This means the Group is hedged against currency depreciation and investors should find its share price attractive.
Econet was another that recorded positive results but this time for the third quarter ending November 30, 2021. Data and voice traffic grew by 43 percent and 6 percent respectively compared to previous year.
The Group is a significant beneficiary of the adoption of the digital lifestyle which helps it stand in good stead for further growth and share price appreciation. During the period under review, the Group received additional spectrum from the regulator which will pave the way for the introduction of new services bringing more convenience to customers.
Further growth and increased usage of its services are however, being hampered by persistent national grid power outages which continue to adversely affect network availability.
They should however not put a damper on investors.-eBusiness Weekly
