Local bourse gains $55 billion in July

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THE Zimbabwe Stock Exchange’s (ZSE) market capitalisation grew by $55 billion in July to close at a record $819 billion as the local bourse’s rally continued, driven by high inflation.
The benchmark All Share Index extended its year-to-date gains to 159 percent after putting on 9,3 percent during the month to end at 6 818,29 points.
All signs, however, point to a slow down going forward with analysts warning the market is now overvalued, while inflation – which has been driving demand for stocks – dipped below 100 percent in July for the first time in more than 12 months.

Zimbabwe’s annual inflation fell from 838 percent last July to 56 percent last month under the Reserve Bank of Zimbabwe’s strict monetary targeting framework, which saw reserve money – the portion of money supply that is affected by printing – growing at an average of 15 percent per quarter during the first half of 2021 against a target of 22,5 percent.
“Inflation is expected to continue declining on the back of prudent fiscal and monetary management, stabilisation of the exchange rate, as well as better agriculture season that stabilises food prices,” Fincent Securities said in a recent note.

And the analysts at First Mutual Wealth say despite the generally improved fundamental performance of listed companies as indicated from the first cycle of published results in 2021, “we believe that a number of ZSE listed companies, particularly in the small and medium cap segment, may now be overvalued”.

Meanwhile, Fincent Securities also says most businesses on the bourse, “including the heavily capitalised ones” are now trading at a premium to the net asset values.
“One would ask what has changed to justify such lofty valuations. Is 2021 is any better than 2013? Certainly not. The period 2009-2013 remains one of the best years marked by real growth, massive capital investment and general optimism.

“What we are experiencing right now is arguably closer to what happened in 2008 where investors that flocked on the stock exchange sought to preserve value for their earnings not caring much about the fundamentals of the businesses that they are investing into,” the equities firm said recently in a note. But with inflation expected to continue declining, it is likely that a market correction beckons.

In his mid-term budget review presentation in parliament last week, Finance minister Mthuli Ncube said annual inflation is expected to further decline to between 22 percent and 35 percent by December 2021.

This comes as the central bank has reduced its quarterly reserve money growth target from 22,5 percent to 20 percent to maintain stability.
The apex bank’s monetary targeting framework has been anchored on open market operations (OMO) — issuing and redeeming securities to regulate money supply in the economy.
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