THE equities market will this year continue to be the most preferred investment option for investors in Zimbabwe as the economy faces inflationary pressures, a local brokerage firm has said.
Official statistics show that 2021 was another spectacular year for local equities after the market significantly outperformed inflation in 2021.
The Zimbabwe Stock Exchange’s (ZSE) main All-Share Index (ALSI) rose by 310.51% for the year compared to annual inflation of 60.7% in 2021. This growth follows an impressive 1 045.84% recorded in 2020.
Experts say this performance was driven by inflation-hedging activities, increased participation of retail investors following the introduction of digital trading platforms and the strong financial performance of underlying counters.
Old Mutual Securities, in a research note titled Portfolio Manager’s Digest Q4 2021, said activity on the equities market will remain strong in 2022 after projecting year-on-year inflation to close around 40%.
“Money market investments are likely to be constrained by current inflationary concerns. Liquidity and valuation challenges are expected to limit investments into property,” Old Mutual Securities projected.
“Based on this assumption, our view is that the equity sector remains attractive in the short to intermediate term from liquidity and value preservation perspectives.
“We believe that Investors should focus on counters in sectors earmarked for higher growth in the 2022 proposed budget such as the tourism, mining, and the manufacturing sectors.”
However, the authorities forecast that annual inflation, which decelerated significantly from 348.6% in 2020 to 60.7% in 2021, is projected to close 2022 between 15-20%.
“The market is likely to remain under pressure from Covid-19 restrictions and low rental yields. However, the adoption of Zimbabwe dollar-based valuation is expected to support capital price appreciation,” the research note reads.
“Property sector players who can adapt and provide properties that can service the specialised needs of growing sectors of the economy such as agriculture, warehousing, and logistics, as well as sections of the retail and informal sector are expected to improve on their earnings yields. Increased dollarisation of the market is expected to depress trades. Overall, property remains a good medium- to long-term hedge against inflation.”
“Despite tight fiscal and monetary policies, inflationary pressures continue to suppress the performance and attractiveness of interest-bearing investments.
“Going forward we do not believe that the cost of capital for on-lending will change significantly, therefore limiting the returns that can be passed onto investors. We expect money market investment returns to remain sub-inflationary.”
Official figures also show that the total value of shares traded on the ZSE in 2021 was ZW$ 65.27 billion, a 276.85% upswing from 2020. Foreign investors were net sellers of ZW$9.73 billion worth of equities on the ZSE and accounted for 11.7% of total trades. In 2020, foreign investors accounted for 22.8% of total trades and were net sellers of ZW$5.42 billion worth of shares.
The maiden exchange-traded fund, the Old Mutual ZSE Top Ten Exchange-Traded Fund (OMTT), had an impressive year, gaining 340.09% in 2021, outperforming both the ZSE All-Share Index and the ZSE Top Ten Index.
Trading on the Victoria Falls Stock Exchange (VFEX) in the year under review improved significantly relative to 2020 with a total of 2.3 million shares worth US$593 812.40 changing hands.
The improvement in trades, according to market players, is largely due to the listings of three counters during the year, namely Padenga, Caledonia ZDRs and Bindura.