ZSE bubble to burst: EIU

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THE Economist Intelligence Unit (EIU), a global think-tank, has warned that the Zimbabwe Stock Exchange (ZSE), which is enjoying a bull run, may burst its bubble as the market is “vulnerable to a sharp correction” ahead of the forthcoming harmonised elections.

Report by Bernard Mpofu

The warning by the EIU comes at a time when the ZSE’s industrial index on Tuesday reached a new high of 223,58 points. President Robert Mugabe is expected to announce the election date soon following a Constitutional Court ruling ordering him to proclaim the date by July 31.

“Whatever the explanation for it, the signs are that ZSE’s bull run has already overshot, leaving the market vulnerable to a sharp correction, especially if — as seems likely — the political environment worsens radically in the run-up to elections later in 2013,” the EIU said.

“It may be a reflection of an under-valued market in 2012, or the fact that foreign buyers are focusing on a handful of consumer shares such as Delta Corporation, Innscor and Econet. Because these are stock market index heavyweights, their price gains have exaggerated the degree to which the market has risen. Many of the smaller counters have shown only very modest gains.”

The equities market’s strong performance — which saw the main index rising by almost 64% from its August 2012 low of 130 — does not, according to finance minister Tendai Biti — seem to be driven by an economic boom.

The economy, according to Biti, contracted by some 3% in the first quarter of 2013 due to political uncertainty.

Official figures show that foreign buyers are dominating, accounting for more than three-quarters of market turnover on the ZSE.
Institutional investors which traditionally had been key drivers on the local bourse have in recent years reduced their exposures to the equities market.

“Also troubling from a statistical viewpoint are the latest data showing that, thus far in 2013, 35 of the 55 corporates have reported either losses or a slowdown in the rate of profit growth.
Indeed, the latest figures — up until May 31st — show profits for industrial shares as a whole down by some 4% compared with 2012, despite a 10% increase in turnovers. As a result, profit margins are being squeezed, falling to 11,4% in 2013 from more than 13% a year earlier,” the EIU said.