Tight liquidity to keep ZSE equities subdued

THE performance of stocks on the Zimbabwe Stock Exchange (ZSE) is expected to remain largely subdued in the short to medium term on account of the Reserve Bank of Zimbabwe’s (RBZ’s) hawkish monetary policy, which has squeezed liquidity from the market, according to analysts’ projections.

During the first six months of the year, however, the ZSE was mostly characterised by highly speculative tendencies as investors sought safe havens in selected stocks with strong balance sheets in light of limited investment options on the money market.

This drove the market higher, but the upward trajectory has since tapered off, falling 34 percent in July, amid the tight monetary policy designed to sustain long-term macroeconomic stability.

“While liquidity management efforts have been key to restoring relative stability to the local economy, money supply constraints have restricted the local stock market’s performance,” said FBC Securities.

“Year-to-date market performance has been largely subdued, generally being outpaced by inflation and exchange rate movements.

“We anticipate market performance to remain under pressure in the short to medium term as a result of the tight liquidity environment,” added FBC Securities.

In July last year, the  Government introduced gold coins in the market mainly to address the runaway exchange rate and provide investors with alternative tools for storing value.

The gold coins have been an efficient liquidity management tool, reported to have mopped up circa $50 billion locally to date.

According to FBC securities, the transactional phase of the gold-backed digital tokens (GBDT), if successfully implemented, should reduce demand for US dollar as a medium of exchange and value preservation.

Efforts to reduce excessive demand for the US dollar will guide continuous liquidity management efforts in taming currency volatility, and will also have a bearing on the stock markets.

“The successful introduction of gold coins as an alternative value-preserving asset is likely to continue to impact the stock market’s performance. Given negative real returns on the market, we expect investors to continue to seek alternative options for value preservation,” said the research firm.

Other market watchers, IH Securities, concurred that trading on the ZSE will remain subdued while liquidity on the US dollar denominated Victoria Falls Stock Exchange should see an improvement.

“Performance on the Zimbabwe Stock Exchange has become a reflection of ZWL money supply dynamics and as such, we foresee performance on the bourse remaining muted in the coming weeks,” said IH Securities.

“The exchange continues to trade at a deep discount at a current market capitalization of US$1,63 billion, giving the opportunity to accumulate quality stocks at a considerable upside.

“On the VFEX, we expect liquidity to improve with incoming dividend payments,” added IH Securities.

The research firm has favoured beverages giant Delta with a BUY recommendation on the ZSE. The company indicated plans to invest US$50 million over the next five years to boost its production capacity.

Delta has since 2017, invested more than US$169 million in modernising its manufacturing and bottling plants, distribution fleet, cold drink equipment and ancillary systems and recently commissioned three new production lines after investing US$71 million.

IH Securities has also given a thumbs up to Axia, Innscor and Simbisa on the US dollar denominated VFEX. – Herald