ZSE correction leaves companies nursing wounds

ZSE correction leaves companies nursing wounds
Published: 22 November 2017
RESERVE Bank of Zimbabwe deputy director for international banking and portfolio management Ernest Matiza's prediction of the Zimbabwe Stock Exchange (ZSE) "bubble" bursting may finally be coming true as companies continue to make excessive losses on the main bourse.

The military takeover of government and the country since Wednesday last week has seen companies that gained during the ZSE bull run recording losses.

The bull run began in July.

In that period, the ZSE overall market cap rose to $15 billion from about $6bn. But since Wednesday, the ZSE has lost nearly $5,05bn.

Companies that gained during the bull run such as Delta Corporation Limited, Econet Zimbabwe and Old Mutual Zimbabwe were making gains on the ZSE as people were utilising real time gross settlement balances to invest on the exchange.

But days after the military takeover and as uncertainty on the market begins to grow, companies are now enduring heavy losses.

For example, Delta's share price started declining by an average of 15,13% since Wednesday on a day-to-day basis to $1,314 per share at the end of yesterday's trading from last week's Tuesday figure of $3,2157.

This drop in price translated in the company losing about
$2,37 billion in a space of four days since the army's intervention leading the company to register a market cap of $1,64bn by the end of yesterday's trading.

Coinciding with this trend are the company's day-to-day trades which were ranging from 713 841 to 1 263 062 as of yesterday.

But, even with the higher trades, the drop in share price meant the value of the shares traded was also lower at $1 659 663,46 compared to Wednesday's $2 269 653.

Analysts say this pointed to an increase in investors in a panic mode fearing losses on their investments.

In terms of Econet, the company's share price since Wednesday has declined by an average of 12,6% on a day-to-day basis to $0,8652 by the end of yesterday's trading.

On Wednesday, the share price of Econet closed at $1,837.

This drop in share price translated to the telecoms giant losing $1,551bn in the five-day period under review, leading to a market cap of $1,38bn, which excludes its class A shares.

Similarly, looking at the trading from a day-to-day basis for Econet from last week Tuesday's trading to Monday this week, the value of trades fluctuated between $38 669 1450 and $31 135 060 owing to the fact that investors were rushing to pull out.

Stockbrokers' Association of Zimbabwe vice-chairperson Arnold Dhlamini on Monday described these trends as buyers "panicking, wanting to sell and get out because a lot of them who came in were betting on the stocks".

Of all the losses, Old Mutual seems to be experiencing the worst decline.

In August, Old Mutual Zimbabwe group chief executive officer Jonas Mushosho told NewsDay that their second half year strategy would be to continue leveraging of equities to remain profitable.

The strategy worked as the company attributed its 614% increase in profit-after-tax to $89,4 million during the first half of the year after investing in Econet, Delta, SeedCo, Innscor, British American Tobacco, Hippo Valley and OK Zimbabwe stocks.

The strategy seemed fullproof by the end of trading on Thursday last week, despite other companies starting to register declines in their share price the previous day.

However, as uncertainty in the market continued to grow, the company's share price eventually dropped at the end of Friday's trading by 19,58% and a further 19,57% at the end of trading on Monday.

The United Kingdom-based company's share price dropped from $14,30 at the opening of trading on Friday to $9,25 as of the end of trading on Monday.

This translated to the company losing $335,44 million in a space of two days, registering a market cap of $614,42 million by the end of trading on Monday.

Looking at day-to-day trades since Wednesday, both that day and the following one registered zero trades as investors held off trading to assess the political atmosphere.

On Friday, investors started trading stocks again, which valued $57 500 before growing to
$92 500 at the end of Monday's trades.

This pointed to investors wishing to sell off shares to make a profit before the share price went down any further.

As Old Mutual is the only company on the ZSE with fungible shares that can be traded across the border on the Johannesburg Stock Exchange and London Stock Exchange, analysts have predicted that more investors will be looking to offload their stocks in this way.

The company's having fungible shares led to its year to date share price increasing to 309,5% as at the end of trading on Thursday.

An investment analyst said the military intervention was largely viewed as progressive to the extent that it rids the country of President Robert Mugabe judging by the glorifying of the army personnel during Saturday's march.

"Good news depresses the market because in the last 12 months, it rallied on the back of bad news," he said.

Going forward, research firm IH Securities yesterday said they expected the market "to close on a lower note tomorrow (Wednesday) on weaknesses across the board".

With all of these developments Matiza's prediction of investors and shareholders "nursing their wounds" is now becoming a reality.
- newsday
Tags: ZSE,


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