Consider mature businesses, FBC Securities tells investors

Investors should consider mature businesses with diverse business models that can withstand changes in operating environment, according to FBC Securities.

In its March 2023 stocks recommendation, the research firm said it anticipated a general bullish sentiment to prevail on the stock market, however, gains may be moderated by inflation tightening measures being pursued by the government.

“We recommend that investors consider mature businesses with a proven track record of performance that have held up well in periods of uncertainty.

“Additionally, investors will derive value from holding positions in counters with diverse business models, inflation hedging capabilities and foreign currency generation capacity,” it said.

Government last year instituted a plethora of measures, including the decision to suspend payments to some contractors and increased the bank policy rate and medium-term lending rate to 200 percent and 100 percent, respectively which have impacted ZWL liquidity in the market.

The Central Bank has highlighted intentions to maintain its tight monetary policy stance to keep a grip on inflation and exchange rate movements.

Locally, FBC Securities said the Government efforts to stabilise the economy yielded results as inflation and exchange rate pressures generally eased in the second half of 2022.

It noted that macroeconomic stability remains fragile, however, owing to a gloomy global outlook, perennial power shortages, depressed aggregate demand and uncertainty around the upcoming elections.

In terms of the stock market development, the research firm said the Zimbabwe Stock Exchange (ZSE) has seen an increase in de-listings by top counters in favor of the rapidly expanding US dollar denominated Victoria Falls Exchange (VFEX) as the bourse continues to attract migration of big companies.

The VFEX platform offers a number of incentives, including tax exemptions on capital gains and the ability to repatriate funds which has been a challenge in previous years.

Investors participating on the VFEX benefit from the ability to move capital and dividends freely, low transaction costs, tax incentives and minimal currency risks.

“The number of listings on the VFEX is expected to continue to grow this year as a result of existing local currency dynamics and unpopular policy intervention on the ZSE,” said FBC.

It noted that liquidity on the bourse has been an area of concern, as activity levels have generally been low, however, the increasing number of quality stocks listing on the VFEX will aid in boosting activity and improving liquidity.

“Increased flow of foreign currency within the formal economy will also be key to driving activity on the VFEX with some of these funds directed to the stock market,” said the securities research firm.

The firm said while standardization of export retention levels may be necessary to lessen arbitrage opportunities in the economy, the move to suspend export incentives particularly for exporting companies listed on the VFEX may be perceived as a signal of policy inconsistency and deter listings on the VFEX.-ebusinessweekly