CONSUMER-facing stocks are this year expected to yield the best returns on the Zimbabwe Stock Exchange on the back of strong demand, a local brokerage and advisory firm has said.
In its outlook for the period under review, MMC Capital said the persisting liquidity constraints besetting the economy would hit hardest the manufacturing sector.
“For the 2014 period, we have tagged an overweight rating on the telecoms, consumer and retail oriented as well as the agriculture sector,” read part of the report.
“We believe investors will reap positive returns if they make selected positions in these sectors as they are consumer-oriented and we believe demand will remain relatively strong.”
The brokerage firm singled out OK Zimbabwe, Delta, Truworths and Innscor as favourites consumer-facing industries while TSL and Seedco would lead the agro-industrial stocks.
The country’s largest mobile phone operator, MMC said, provides a good investment case on the sector due to growing opportunities.
The report said value-added services are expected to drive the company’s revenue.
On the contrary, MMC made underweight ratings for banking, manufacturing, insurance and mining counters.
“The economy is running out of steam on the back of scarce sources of funds and the new Finance minister has engaged the International Monetary Fund (IMF) and the World Bank to provide new credit lines,” reads the report.
“The Zimbabwe economy is likely to remain under pressure in 2014 as capital constraints continue to clip recovery prospects. There is a growing need to mobilise funding for all sectors of the economy if the country is to arrest the economic slowdown gripping the country.
“Funding, in our view, remains the biggest challenge for the economy in 2014 and we hold that the government should intensify its efforts in clarifying and flexing its policies to attract FDI and revamp the economy.”
High non-performing loans which rose to 15% last year from 5% in 2005, MMC said, would affect the profitability of banks.
The use of antiquated machinery due to funding constraints on the other hand is also expected to result in underperformance of manufacturing sector. Capacity utilisation for the sector last year dropped to 39% from 44% in the prior year.
Turning to the mining sector, the brokerage firm said price fluctuations on the international market would also affect performance on the capital-intensive sector.
On insurance, MMC said low product uptake triggered by company closures would also make the sector less attractive.
Last year cigarette maker BAT, according to official statistics, led the top 10 stocks pocketing 233% in the year to close at 1,200 cents. This, MMC said, was on the back of improved business fundamentals and increased foreign investor appetite for the counter.
Tobacco leaf merchants, TSL, also gave a splendid performance in the year (230%) on the back of increased investor interest in the business as restructuring is bearing fruits.