Zim macroeconomic report 2013 review and 2014 outlook

Published: 28 January 2014

Imara Edwards Securities released its Zimbabwe macroeconomic report 2013 review and 2014 outlook.

A sweet spot for the ZSE in 2013
After a largely indifferent year in 2012 the ZSE industrial index reported a sterling performance in 2013 gaining a sturdy 32.6% compared to 4.3% in 2012. This was on the back of a better economic environment in 2012 and early 2013 when corporates reported improved profitability. The overall performance of the industrial index was so strong that in June 2013, before the harmonised election, the return on the index was close to 50%. Speculation on the reintroduction of the Zimbabwe dollar immediately after the election and unclear economic policies then dampened investor enthusiasm resulting in the market losing momentum during the third quarter. Reassurances from the Ministry of Finance (MoF) and the Reserve Bank of Zimbabwe (RBZ) on the continuation of the multicurrency system instilled confidence back into the market by the beginning of the fourth quarter.

The Mining Index for a third straight year receded to close the year with a negative return of 29.7% compared to -35% y-o-y in 2012 and a loss of 49.8% in 2011. The industrial index's gains were bolstered by respectable performances from the blue chips, Delta, Econet, BATZ, Old Mutual, TSL and Padenga, while the mining index suffered due to unexciting performances from all four listed counters namely Falgold, Bindura, Hwange and RioZim. The solid performance of the industrial index was anchored on the back of predominantly foreign trades owing to the ‘trickle down' effects of quantitative easing (QE) in developed economies. Furthermore, investors were attracted to the ZSE irrespective of the election due to the multiple currency regime which entails that foreign investors had minimum exchange risk especially coming from a USD denominated home country.

2014 Equity Outlook
Going forward we expect the bourse to be largely defensive in 2013 owing to the ongoing tapering in the USA. This will impact the Zimbabwean economy in two ways. Firstly there is the inescapable fact that there will be reduced portfolio inflows on the ZSE and secondly the reduction in QE will make the USD appreciate against any other currency which will further erode our manufacturing competitiveness. Assuming a deflationary environment in 2014 companies that are expected to do well are those with strong cash generating capacity, low gearing and most importantly a skilled management team. With demand expected to weaken, liquidity to tighten, currency to appreciate and international interest rates to rise it will be heinous to invest in a highly leveraged company because the prospect of financial distress are high.

Telecoms, brewers, agro-based manufactures and selected defensive FMCG will do admirably well in a defensive strategy geared towards value preservation compared to growth. We urge investors to stay clear of the banks, manufacturing and mining counters due to high capital demands in these sectors as well as deep rooted concerns of technological obsolescence in the current state of operations. Indications on the ground are pointing towards a very difficult year from both the fiscal performance and private sector participation. Unfortunately we expect more companies to file for judicial management and some will be liquidated as the inescapable effects of deflation bite.
- Imara Edwards Securities

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