This report is republished for our readers’ interest, from the Zimbabwe Independent (www.theindependent.co.zw) newspaper.
Economist Brains Muchemwa said stock price movements on the Zimbabwe Stock Exchange, like other commodity prices, would be determined by economy-wide liquidity levels. “The liquidity crunch in Zimbabwe has subdued the upward movement of the ZSE. Therefore the fortunes of the ZSE, from a liquidity dependence perspective, hinge on the ability of the economy to generate more liquidity via exports, lines of credit and the level of foreign participation on the bourse,” he said.
He said although the general perception was that the majority of stocks on ZSE are largely trading at a discount, the liquidity crunch, uneasiness on the political front and indeed the debt-infested corporate balance sheets would continue to restrain significant surge in stock prices.
“Shrewd investors prefer businesses that generate strong cash-flows, the reason why therefore the argument that most companies on the ZSE such as ZPI and African Sun are trading below their replacement costs is difficult to defend and subscribe to,” Muchemwa said. “Counters exhibiting strong cash-flows and decreasing current and potential gearing levels are what investors will most pocket on the market, and these will be the value drivers of the ZSE going forward.”
Economist David Mupamhadzi told businessdigest that the performance of the ZSE will continue to be driven by the performance of the economy, and the expected strong performance of most key sectors of the economy in 2011 was good news for the ZSE.
“However, political developments will also play a big role in influencing the performance of the ZSE. Reports of an election in 2011, could force a number of investors to adopt a wait and see attitude,” he said.
“Furthermore, depending on the prevailing political conditions, especially linked to the constitution, referendum and the much talked about elections, the ZSE could take a serious hammering if there is no peace and stability in the country.”
Presenting the 2011 National budget, Finance minister Tendai Biti said the local bourse had been rather “subdued” for the greater part of the year saying “the revival of the economy coupled with the modest improvements in industrial capacity utilisation has not significantly spurred activity on the Zimbabwe Stock Exchange”.
“Rather negative investor perceptions coupled with persistent liquidity challenges continue to subdue trading on the ZSE over the period to August,” Biti said.
Foreign investors maintained the lead with their participation increasing from an average of 20% in August to about 40% and 50% of total shares in September and October.