Linda Tsarwe Business Correspondent
The local bourse put on a positive performance for 2013, despite the hurdles that faced the economy during the year. The mainstream index closed the year 32,6 percent higher at 202.12 points. Ironically, the economy only grew an estimated 3,4 percent against the beginning of year growth estimate of 5 percent.
Growth had to be revised downwards due to the under-performance of key areas, especially agriculture and mining.
However, the mining index tumbled 29,7 percent, which was reflective of how most mining companies are struggling. As we have now stepped into 2014, are there any prospects of another positive performance out of the local bourse?
The market is most probably not going to put up a divorced performance from that of the economy, as was the case in 2013.
Government is projecting a 6,1 percent growth in Gross Domestic Product in 2014. This is almost double what the economy achieved in 2013.
The growth forecast has been received with mixed feelings as some reckon that the growth projection is too aggressive. A number of fundamentals require immediate attention, and should these issues be addressed, chances are that they will not have much effect in the short term.
It is therefore probable that the 6,1 percent growth might not be achieved this year. Therefore no miracles can be expected from the equities market either. In fact, the market might take a harder knock relative to the economy as a whole, since it had set a high base in 2013.
With such a discouraging economic performance, most companies are expected to follow suit as far as financial performance is concerned.
Already, 2013 has generally not been a good year for most companies, with some dipping into losses from profitability, while for others the hole became even deeper.
Pelhams is a good example of a company that recorded both a lower turnover as well as higher losses. Challenges such as shortages of liquidity have rattled the market intensively.
Retailers have failed to register significant turnover during their traditional peak periods such as the festive season. Consumers were not into their usual holiday spending frenzy, as they had little capacity to do so, given the liquidity challenges.
At the same time, access to capital for business remains tight. There is a threat of a number of companies going under as the issue of capital is now long overdue.
For years now, sectors such as manufacturing remained crippled, and the decline of capacity utilisation from 44,9 percent 2012 to 39,6 percent in 2013 is evidence that the situation is becoming direr.
If there is no significant inflow of capital, then it would not be surprising for the sector to register a further decline in capacity utilisation.
Because of the unfavourable state of affairs in the sector, manufacturing companies listed on the local stock market have been under-performing.
PG was suspended from trading with effect from December 31, 2013, and the suspension can only be lifted after their scheme of arrangement with creditors is finalised and communicated to all shareholders.
The company’s financial performance has been poor and has therefore been struggling to settle their creditors. The fear is, considering that a number of companies are facing similar problems to those of PG’s, is the market going to experience a series of suspensions in 2014?
It is critical that the problem of capital be addressed, otherwise the survival of most of these companies hang in the balance.
However, it is not all doom and gloom, as certain companies have proven their resilience over time, and hence will be expected to carry the local bourse. Delta, for example, is currently the largest counter by market capitalisation, having closed the year with a market value of US$1,7 billion.
It is an adequately capitalised business with an all weather business model, that is least shaken by economic storms. Being a big cap counter with a solid capital base, among other reasons, it is favoured by foreign investors.
Other big cap counters such as Innscor, Econet and BAT are probably going to account for the bulk of the ZSE turnover, mainly foreign money, because of their blue chip nature. Again, due to the doubtful economic growth prospects for 2014, it would not be surprising that investors might shun small cap counters in favour of the blue chips as the former may be perceived as too risky.
Counters such as ART, General Beltings and ZECO have market capitalisation of under US$1,4 million in total and activity on the counters in 2013 was paltry. Chances are that these small cap counters might delist due to their inactivity and market cap size.
Interfresh, for example, applied for voluntary termination of listing of the company in December 2013.
With effect from the December 31, 2013, the share had been removed from the official list, with a market cap of just under US$1 million.
Notably though, it has always been difficult for local investors to move sizeable number of blue chips shares on normal trades due to their price. So, although prospects of lifting up the bourse lie with the big companies, it is also contingent upon receiving foreign money.
Despite foreign investor scepticism which has remained high, it is interesting to note that foreign money still dominated the bourse in 2013, accounting for 60 percent of total value of shares bought.
For 2014, global macro-economic issues are at play. Should the United States pursue its quantitative easing programs, the local market might get more support from foreign investors as the expanded money supply in the US might find its way into smaller and emerging markets.
Theoretically, any stock market performance moves in the same direction as that of the economy. An ill performance by the economy is a reflection of generally how companies are struggling. Although there is an attractive growth forecast for 2014, whether or not it will be achieved is the high value question.
Already, market sentiment is indicating that the growth rate is too ambitious. With such a perception, not much growth would then be expected from the stock market, if any.
Lack of capital will continue to suppress performance of most companies, especially mining companies, putting more downward pressure on the stock market. Furthermore, if capital inflows are little, the liquidity problems might exacerbate, which will depress turnover for the year.
Foreign money will likely remain vital to supporting trade, otherwise activity might significantly slump. It remains to be seen if cards will be played right on the economic front, which is vital for the health of the stock market.
The writer is primarily responsible for this article and certifies that the opinion on the subject or any other views expressed herein reflects the writer’s personal views. The writer has taken all reasonable steps to ensure that the information in the article is correct and no liability is accepted for any loss arising on reliance on it. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of the writer.
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