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and the procedural layout of both economic and political calendars create humps and depressions which sometimes make smoothing out overall time series a nightmare.
The Zimbabwean market is for the first time after the departure of former ZSE CEO Emmanuel Munyukwi awaiting the release of full year financials for most of the locally domiciled counters.
There had not been fundamental changes from a corporate growth perspective if a year-on-year comparison is to be made, the erstwhile challenges of costly operating capital, unimpressive loan book structures, depressed foreign direct investment and failure to adhere to international best practices remains primary threats to real growth of corporate balance sheets. Whether companies are reporting accurate results in an environment where the propensity to “cheat” is high also makes our market an interesting one to track.
The near dearth of the money market has aggravated the gloomy structure of the credit regimes as interbank transactions remain thin if not absent, with only about US$4 billion said to be in circulation and transient deposits, room for term deposits to manifest through money market securities such as Treasury Bills, negotiable certificates of deposits and bankers acceptance is at all time low. The undersubscription of the last TB issue was not poised to be a shocker as the non-convergence of macro-economic dynamics will not give room for the fair pricing of the securities.
The decree by the Treasury the last fiscal policy “exterminated” the bank charges sending shivers in the market which precipitated the signing of the memorandum of understanding between bankers and their supervisor.
In the coming financials, we do not expect the new requirements to impact on bank financials as the drag effect of the developments are yet to be felt.
However, the policies could have a dent on the overall direction of banking counters in the long run. Most banking institutions are in the over-drive of trying to clean their sub-optimal loan books as the official level of non-performing loans is pegged at 13,1 percent which in the same vein is an underestimate as we know the period 2010 to second quarter of 2012 had seen most institutions loan deposit ratios skyrocketing to about 89 percent.
Delta, Econet and Innscor continue dominating the volume regimes at the ZSE, counters such as ZECO have possibly not experienced turnover above US$130 since the turn of 2013 as all echoes of trading will be emanating from the heavily capitalised counters leaving the ZSE as one of the most imbalanced exchanges in the world. The comparative advantage such as well capitalised exchanges enjoy in terms of attracting cheap capital and established franchises will maintain the dis-equilibria state of trading. After the commissioning of a new plant at Delta some few months ago, this will be reflected in their forthcoming financials as the revenue base of the largest tax payer in the land will be much bigger.
Zimbabwe is poised to hold a constitutional referendum in the last stretch of this first quarter, the implications can be so destabilising and have a discounting effect. The wait-and-see attitude will certainly dampen the improved financials expected notably from manufacturing and agricultural sectors.
This implies attempting to get a fair valuation of the stock in the midst of the reporting season might be misleading as the political risk factor will be having its toll on company prospects due to a pending constitutional draft.
However the political risk posed by this constitutional referendum process cannot be compared with 1999 document as polarisation those 14 years ago was quite high with Zimbabwean political parties not operating in an inclusive structure then.
The ZSE remains a heavily discounted bourse with most stocks trading at least 40 percent below even the book value, the tobacco sales flows are to inject cash inflows into the market economy but the marginal propensity to spend on every unit of tobacco proceeds is less on stocks than it will be on merchandise imports hence crowding out the potential of a stock market rebound.
It could also be a momentous occasion when the senior management in most banking institutions should be clear on how they expect to strengthen the balance sheet position knowing very well that the option of a rights issue has not been effective due to the dryness of the market.
The recent inflation statistics ushers a ray of hope to the domestic investment markets with inflation now pegged at around 2,5 percent year on year. The appreciation of the real exchange rate suggests that the price structure of the economy has shifted against tradable products.
This has negatively affected recovery in production of tradable products, as capacity constraints hampered a domestic supply response to the strong spike in internal demand that followed 2009 stabilisation.
The distribution factor has filled the gap instead, supplying imported goods, keeping prices of tradables at low levels and contributing to a current account deficit.
The process of de-industrialisation might continue into this year as the allocation of substantial sums to distribution within most banks’ loan books has seen the economy exporting jobs unknowingly.
Christopher Takunda Mugaga is an economist. He is also the Head of Research at Econometer Global Capital, a regional finance and economics research firm. He can be contacted on +263 772 340 353, /+263 776 266 062 or [email protected].
Online Reporter