After a positive first quarter performance, bullish sentiment is expected to continue to prevail on the equities market throughout the year although gains may be moderated by inflation control measures being implemented by the Government.
During the first quarter of this year, month-on-month declined from 0,7 percent in January to 0,1 percent in March, trending below the forecasted blended average of 1,5 percent average in 2023.
Annual inflation has also taken a disinflationary path easing from 101,5 percent at the start of the year down to 87,6 percent at the end of the quarter.
Despite these, the local currency has been under pressure, depreciating 34 percent within the month and the black-market premium widening to 64 percent as the official rate trails behind.
In light of these developments, the monetary policy committee has resolved to maintain a tight monetary policy, but has also indicated reduction of the bank policy rate effective April 1, 2023, from 150 percent to 140 percent per annum, as well as reduction of the rate for the Medium-term Bank Accommodation (MBA) Facility for the productive sectors, including individuals and MSMEs, from 75 percent to 70 percent per annum.
While the equities market is expected to see gains, market watchers are however favouring defensive stocks to stand the heat coming from the economic uncertainties spurred by various challenges like foreign currency shortages and power outages disrupting production across sectors.
“We are of the view that we will continue to see strong correlation between money supply and ZSE stock market performance.
“The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued,” said equities and economic research firm IH Securities.
FBC Securities concur, arguing stocks with a proven track record of performance, even in times of downturn are the preferred ones. The likes of Hippo, Delta, Econet, Innscor are among the top picks.
“Investors will derive value from holding positions in counters with diverse business models, inflation hedging capabilities foreign currency generation capacity and stable dividend policies.
“A general bullish sentiment is likely to prevail on the ZSE, however gains may be moderated by inflation tightening measures and liquidity constraints,” said the stock brokers.
FBC Securities added that the US dollar denominated exchange, the Victoria Falls Stock Exchange (VFEX) will continue to remain a viable option for investors on its ability to offer returns and value preservation in a more stable currency than the Zimbabwe dollar. The exchange currently hosts a number of quality listings, and has a healthy pipeline of expected listings in the near future.
It is expected to see more listings during the second quarter and going forward as businesses seek to hedge against currency and exchange rate volatility.
“Despite the current liquidity challenges, we anticipate improved activity owing to increased flow of USD in the formal economy and the growing number of listings on the bourse in the medium to long term,” said FBC Securities.
During the first quarter, total market value on the ZSE jumped 65 percent to $3,4 trillion from the previous quarter as the primary indicator, the ZSE All Share Index rose 98 percent quarter on quarter.
The VFEX All Share Index retreated 7 percent although total market value jumped 75 percent spurred by new listings during the period.
On the ETFs market, total market cap jumped 50 percent to $11 billion.
Biggest gains during the quarter were seen in Tanganda, Hippo, Nampak and African Sun which rose by 252 percent, 243 percent, 236 percent and 234 percent in that order.
Star Africa, FML, ZB and Truworths were the laggards for the quarter easing by 28 percent, 22 percent, 11 percent and 10 percent respectively.