Economic headwinds threaten equities in 2017

Trading on the Zimbabwe Stock Exchange (ZSE) will be depressed this year owing to economic headwinds, with buying of stocks centred on companies that pay a dividend, a leading stock brokerage firm has said.

BY BUSINESS REPORTER

In a report, 2017 Zimbabwe Equities Outlook & Stock Picks, MMC Capital said due to the liquidity crisis, foreigner participation would continue to be on the selling side, though at a slower pace than prior years, as it seemed most of them have sold out by now.

“The local institutional investors will likely continue to be active on the buy side. Buying will likely be centred on companies with strong fundamentals, as well as with the capacity to pay dividends. Diverse revenue sources will also likely be a key input in stock screening,” MMC said.

It said there has been a shift of investor appetite on the ZSE since 2015, as more foreign investors are now concentrating on the sell side.

MMC said the hurdles encountered in repatriating equity proceeds and dividends as a result of the foreign currency shortages would affect the upside potential of ZSE in the outlook.

“Despite being ranked in the first category, the repatriation of equity proceeds as well as dividends remains a mammoth task. This will likely weigh down on the upside potential of the market going forward as foreign interest on local equities diminishes,” it said.

In its stock picks for 2017, MMC rated agriculture as overweight as the sector is vital for economic recovery and the government has vowed to support the sector. Recovery is dependent on the availability of credit, inputs and adequate rains, it said. Agricultural concerns to look for include TSL, Seedco and Padenga.

Construction had an overweight rating as infrastructure is one of the key enablers for any economic revival.

Despite the economy being in such dire straits, we continue to witness a lot of construction activity, MMC said, picking PPC as a stock to invest in.

The telecomms sector was given an underweight due to limited room for growth in the sector, on the back of massive use of over the top services at the expense of voice and SMS. There is already cutthroat competition in the sector and infrastructure sharing will further worsen rivalry, it said. Econet is its stock pick.


Tourism, consumer goods (retail) and mining sectors had neutral ratings. MMC said improvement to the country’s profile will eventually translate into higher tourist arrivals. Re-rating of the country as a tourist destination will benefit resort hotels, MMC said with African Sun as its stock pick.

In the consumer goods sector, MMC said the demand for foods, beverages and protein sources has been high since dollarisation. It said the sector was highly competitive, with low margins picking Delta and Simbisa.

In the mining sector, MMC said opportunity for growth was immense, as a bigger portion of the country is yet to be explored. The positive outlook for commodity prices will likely spur growth in the sector, MMC said picking out Bindura.

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