Liquidity constraints hamper stock market activities
The local stock market’s performance has remained largely subdued as liquidity constraints have hampered activity following the pronouncements made by the Government in May, a securities research firm has said.
The central bank as part of the broader Government measures on its part, hiked the bank policy rates from 80 percent to 200 percent in June this year, aimed at curbing speculative borrowing and stabilising the exchange rate.
Moreover, the central bank introduced gold coins as an alternative investment, which has largely helped to mop up excess liquidity in the market.
“We anticipate a sustained bearish trend to prevail on the market in the short to medium term as a result of the contractionary policies introduced by the government. Government highlighted intentions to maintain its tight monetary policy stance to keep a grip on inflation and exchange rate movements,” FBC Securities Research said in its stock pick recommendations for November 2022.
It said the bearish sentiment presents opportunities for portfolio reconstruction and accumulation of quality stocks at discounted prices.
“Given current global economic trends and the local economy’s specific challenges, we recommend investors hold positions in counters well positioned to weather the economic turbulence.
“We believe investors can derive value from companies on the ZSE with diverse business models, inflation hedging capabilities and foreign currency generation capacity,” said FBC Securities.
According to the FBC, the All Share Index moved two percent in October and 39 percent year to date (YTD). The Top 10 Index fell three percent in October and 30 percent YTD.
The research unit said the Victoria Falls Stock Exchange (VFEX), despite having kicked off on a relatively low note, has been gaining momentum and has a healthy pipeline of proposed listings.
The USD- denominated Victoria Falls Stock Exchange, was launched as an offshore biased financial services center in a bid to attract global capital, restore foreign investor confidence and help companies raise capital in foreign currency.
Interest in the VFEX has continued to grow as the value preservation characteristics of the USD- denominated bourse attract investors while the incentives introduced by government, including revised retention thresholds for exporting entities, promote listing prospects.
FBC said while liquidity challenges have been prevalent, with generally depressed activity levels, the bourse is poised for increased activity owing to the growing number of listings on the horizon.
“The VFEX remains a viable option for investors with USD liquidity, offering attractive returns in a more stable currency than the local ZWL.”
The exchange offers a 5 percent withholding tax on dividends and no capital gains tax on share disposal, meaning shareholders are able to retain more of their earnings, compared to the situation prevailing on the ZSE.
“This coupled with an anticipated increase in the flow of USD in the formal economy, we anticipate improved performance of the bourse in 2023,” said the research unit.
To date, Simbisa Brands Limited and National Foods Holdings Limited, have indicated plans to delist from the ZSE and list on the VFEX.
Additionally, Nedbank Zimbabwe Depository Receipts, are slated for VFEX listing in November 2022, while the government intends to list a US$100 million bond on the bourse before the end of the year.
The listing of the Karo Mining Holdings US$50 million bond, has also been announced, offering investors the opportunity to participate in a USD fixed income product, paying a semi-annual coupon of 9,5 percent pa, with a three-year tenure to 2025.
According to FBC research, VFEX overall performance has remained marginal year to date owing to selected volatile months. To date, it is up 2,5 percent.-ebusinessweekly
