Yesterday, Monday 05 August 2013, the Industrial Index lost 11% one of the biggest daily losses recorded in the multi-currency system, to close at 205.57 points at a local market capitalisation of USD 5.6bn. The other significant losses were 21.1% and 17.3%, recorded on 25 February 2009 and 27 February 2009, respectively. These were witnessed in the early parts of dollarisation as price discovery mechanisms settled in. Yesterday's market blood bath follows the announcement of the harmonised election results in which Zanu-PF won 158 seats of the 210 parliamentary seats, giving it a two-thirds majority in the legislature. MDC-T gained only 50 seats. The Zanu-PF Presidential candidate R.G. Mugabe was declared the winner with 2,110,434 votes (61.09%) and his nearest rival M.R. Tsvangirai on 1,172,344 votes (33.94%).
Although the elections have been declared free and fair by the majority of the African countries including SADC and the African Union (AU), the MDC-T, Australia, Britain as well as USA are reported to have said that they were not free and fair. Despite the disagreements the parties generally agree that the elections were held in a peaceful environment. The MDC-T is reported to be challenging the results in the Constitutional Court (Con Court) in which it has 7 days within which to file the case from the date the election results are announced. The ruling from the Con Court is then expected within 2-3 days. This implies that swearing in of the President may have to wait until probably 16 August 2013.
The market weakness can be attributed to the uncertainties around the election results exacerbated by rumours of the return on the local currency in the short term, lack of clarity around indigenisation as well as rumoured amendments to the new constitution. Although we concur that the market had overheated especially in some names and was due for a correction, we believe that the drop might not be sustainable as some investors tried to sell in panic. In efforts to quell the rumours Rugare Gumbo, Zanu-PF Secretary for Information and Publicity is reported in some press reports to have clarified that Zanu-PF has no intention to amend the constitution and this can only be done in consultation with the people if the need arise. Furthermore, the party's election manifesto states that the local currency will only be returned after the economy has stabilised.
The country's economic performance slowed in the first half of 2013, resulting in the Ministry of Finance revising its GDP growth rate downwards to 3.4% from an initial estimate of 5.0% on account of underperformance by mainly the agricultural and mining sectors. Agriculture is now forecast to grow by 5.4% negatively impacted by the declines in maize, groundnuts and cotton output. Mining is expected to achieve a 5.3% growth against an initial target of 17.1% mainly as a result of falling international prices, rising production costs as well as lack of long term funding. According to the Ministry of Finance inflation is expected to end the year at 3.9% from initial projection of 5.0%.
- Imara Zim Research
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