Investors take ‘defensive’ outlook

via Investors urged to take ‘defensive’ outlook on Zimbabwe | African News | BDlive. 12 June 2014 by Ray Ndlovu

ZIMBABWEAN stockbroker Imara Edwards Securities expects the Zimbabwe Stock Exchange (ZSE) to take a “defensive” outlook for the rest of the year in a period of self-correction.

Deflation and a persistent liquidity crunch are seen as the key drivers of recent subdued activity on the ZSE, with a warning issued by Imara that more manufacturing firms could file for judicial management or shut down this year. “With demand expected to weaken, liquidity to tighten, currency to appreciate, and international rates to rise, it will be heinous to invest in a leveraged company because the prospects of financial distress are higher,” it said.

“We urge investors to be cautious on banks, and they should stay clear of manufacturing and mining counters due to high capital demands in these sectors as well as deep-rooted concerns of technological obsolescence,” Imara said.

“Indications on the ground point to a difficult year … and we expect more companies to file for judicial management and some will be liquidated as the … effects of deflation bite.”

With a market capitalisation of $4.6bn, the ZSE is the seventh-largest stock market in Africa and is dominated by foreign investors, who accounted for more than 60% of trade last year.

Imara Edwards executive director Tino Kambasha said on Wednesday that this self-correction should not scare away investment. “It’s an opportunity to buy on the ZSE,” he said.

Markets needed to “come back to reality” as “we had become very expensive”, he said.

The Confederation of Zimbabwe Industries on Tuesday warned that it expected factory capacity utilisation for the year to fall to 30%, down from the 39.6% recorded last year.

“At the moment we are seeing diminished earnings on the ZSE as a result of reduced spending power. We will see more delistings until investors come back to the country,” Mr Kambasha said.