Zimbabwean equity markets leans more towards defensive stocks

BULLS dominated on the Zimbabwe Stock Exchange (ZSE), as total market value surged by 160 percent to $9 trillion in May alone driven by excess liquidity that found its way to the bourse.

In real terms, the ZSE market cap witnessed a 44,8 percent growth to close at US$2,47 billion in the period under review.

May witnessed resurgent inflationary pressures on the back of a volatile exchange rate. Blended monthly inflation reached 15,7 percent in the month, from 2,4 percent a month earlier.

Zimbabwe National Statistics Agency (ZimStat) figures show that inflation for food and non-alcoholic beverages had the highest month-on-month inflation rate of 25,9 percent, followed by health at 14,8 percent.

Year-on-year inflation consequently rose from 75,6 percent to 86,5 percent.

The economy has been grappling with exchange rate volatility, with the official exchange rate on the auction devalued by 85 percent to the dollar, whilst the interbank rate weakened by 87 percent in April.

Monetary authorities are currently trying to close the widening gap between the official and parallel market rates.

Weekly devaluations at the auction moved from 4,82 percent to 36,5 percent.

At peak, the parallel market premium within the month was 135 percent.

It, however, closed the month at 91 percent after the auction was fine-tuned to a pure Dutch auction system.

On the ZSE, average daily value traded for the month of May grew from US$0,53 million to US$0,61 million, whilst total volumes leapt 197 percent to 227,84 million shares.

Market watchers maintain the market is still trading at a discount to the long-term average of US$4 billion.

“As such, the ZSE offers upside, trading at a deep discount to fair value despite fundamental growth in businesses over the past three years and themes of increasing corporate transactions,” said IH Securities in a monthly review.

“We are of the view we will continue to see strong correlation between money supply and ZSE stock market performance. The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued.”

Elsewhere on the Victoria Falls Stock Exchange (VFEX), there were two new listings – WestProp and First Capital Bank (FCB) – which migrated from the ZSE.

With the two new listings, total market cap within the month of May increased 11,69 percent to US$1,21 billion.

During the month under review, two of the 11 listings posted gains, while three remained neutral and seven companies posted losses month-on-month.

National Foods paced the fastest, jumping 18 percent month-on-month, followed by Nedbank, which gained 11 percent within the period.

New listing FCB ended the month 24 percent down, whilst BNC was the second-worst performer, losing 18 percent.

Overall performance was boosted by new listings, with market cap increasing 11,69 percent in the month.

Liquidity improved by 18,66 percent to US$1,91 million, with diversified heavyweight Innscor contributing just over US$1 million.

Volumes in May grew 41,7 percent to 6,46 million shares, again with Innscor again leading trades.

On a one-year rolling basis, the VFEX All Share Index has outperformed its peer and has provided the better store of value within the period.

“There however remains selling pressure on the VFEX,” said IH Securities.

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