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Business Writer
Investor confidence on local stocks is likely to be different across sectors due to the selective impact COVID-19 will have on different economic segments, analysts at Sidewaos Research Consultancy (SRC) have said in a research note released this week.
Traditionally, stock prices reflect expectations of future profits, and investors see the virus and the subsequent 21-day lockdown dampening economic activity and reducing future profits.
The unanswered question, of course, is how long the disruptions last and how deep they go.
Restricted access to markets and the almost complete cessation of corporate activity will exact a real cost on businesses’ bottom line.
The virus has also come at a time when most companies are not well performing amid falling sales volume and declining capacity utilisation.
The research firm expects quick recovery from the impact of Covid-19 to be recorded by food producers and distributors while insurance firms are likely to recover at the tail end, thereby influencing investor choice.
Industrial metal and or mineral exporters, that is nickel and ferrochrome exporters will suffer from negative price shocks whilst the gold sector will benefit from better gold prices given that the mineral is used for hedging and will likely firm as investors dump stocks and currencies, reads part of the research note.
“The tourism industry will also be hard hit in the immediate to short term, with significant drops in tourist arrivals both domestically and internationally due to the travel restrictions imposed to curb the spread of the virus and resultant fears of contracting the virus even post Covid-19.”
RTG has already indicated that it could lose a potential 6 percent of its total annual revenues during the 21-day lockdown ordered by Government effective from 30 March 2020.
Fellow industry player said it has not been generating revenue since national lockdown order and can only pay 50 percent of the April salaries.
“Post Covid-19, we are likely to see strong growth in technology driven stocks as the demand for technology-based business solutions increases.
“Online grocers and suppliers as well as nimble logistics firms should benefit as well from the increased demand for home delivery goods that will sustain in the future as well as growth in telecoms and online marketing.”
This should see an increase in the demand for ZSE-listed Econet Wireless Zimbabwe which also has a stake in Liquid Africa, an internet service provider.
Meanwhile, equity market analysts Ranga Makwata, is of the opinion that negative economic prospects mean earnings performance for companies including listed ones will be depressed, therefore making them less attractive to investors.
“The investors themselves will also have reduced capacity to invest because they’re having to deal with the impact of lockdowns, reduced inflows and demand to meet increased day to day needs,” he said.
He said while many would have preferred to preserve cashflows, given the uncertainty on how long the pandemic will last galloping inflation will drive investors to the stock market.
“Of course, the catch for Zimbabwe specifically is inflation, which will discourage people to keep cash per se and this might lift the stock market as investors use it to preserve value.
Inflation rate for the month of March 2020 stood at 676, 39 percent as the exchange rate depreciation continue to determine price increases.
The month on month inflation rate in March was 26, 59 percent gaining 13,07 percentage points on the February rate of 13,52 percent.
While investors on the Zimbabwe Stock Exchange are expected to be selective on their choice of stocks they are also likely to consider historical issues that have dogged the local economy for years, according to Sidewaos Research Consultancy.
“Generally, however, recurrent historic problems namely policy inconsistency, an unresolved currency crisis, lack of traction on social dialogue and lack of clarity on a post Covid-19 stimulus package for industry and the informal sector will dominate investor decisions,” reads part of the research note.
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