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Albert Nerumedzo In the Money
EQUITY market participants both current and potential have a keen interest on the expected performance of the local bourse. The market posted an impressive 32,6 percent gain in 2013 with the first half of the year putting in 39 percent which was then reduced by 4,3 percent in the second half amid post election anxiety.

The equities surprised many when they defied all the odds as they performed contrary to the prevalent economic conditions of 2013 as the Zimbabwe Stock Exchange positioned itself as one of the top performers of that year.

US dollar performance against African currencies for the period was the icing on the cake as the Dollar outperformed most African currencies.
The economy on the one hand did not end the year on a good note, with previously anticipated growth being downgraded significantly to pitiful levels.

The general norm across most economies is that Capital Market activity and performance is the barometer for local economic conditions and expectations as these determine the performance of underlying equity assets.

If this notion holds true for Zimbabwe, what then can we expect for the equities market in 2014?
With the economic trajectory having gone under a spell of retardation amid chronic liquidity challenges, the evidence of recession is now becoming more and more visible by the day.

Rising vacancies in office space in the CBD bears testimony to the declining level of business activity in the economy.
Consumer spending patterns have been affected severely as consumers prioritise basics ahead of luxuries.
Unemployment has been on the rise with some companies failing to sustain operations at current levels of demand aggregates.

Troubled financial institutions could fold if attendant challenges are not addressed, thereby increasing unemployment in the country.
Fiscal pressures continue to mount in the wake of a shrinking tax base with both corporate and personal tax collections going down.

Foreign financial institutions have remained resiliently adamant on their stance to see the country reduce its external debt before gaining access to additional fiscal support.

Current Government expenditure, which is skewed towards recurring form, bares testimony of the lack of insight support for the critical sector support.

Players should adopt survival strategies through capital and operational structure changes backed by viable financing partnerships with both local and international investors.

Key sectors continue to be affected by pressing financing, operational and demand side deficiencies.
The manufacturing sector remains under pressure due to sector wide challenges to which Industry seems to have no solution.

Capacity utilisation in 2013 dropped from 44 percent to 39,6 percent with power supply and the funding gap continuing to be the sector’s major challenges.

A strong US dollar against emerging market currencies, particularly the South African Rand, has influenced an increase in imports which has further eroded the competitiveness of local manufactures.

South African manufacturers have moved in to capitalise on local manufacturers’ incapacity followed by the Chinese and other countries that are being lured by a strong US dollar and attractive pricing.

Improved performance in support sectors like Agriculture (which has been buoyed by a good rainy season) and improved output from current efforts to fully exploit all revenue sources from the mining sector may help address compounding supply side challenges.

Having reviewed the environment in which listed companies are operating, I will try to look at the potential trajectory that is likely to be followed by the capital markets, particularly the equities market.

The earnings season has often been a source of momentum for the equities market, particularly at the beginning of the year (March earnings reports) where most participants will be mapping out their equity strategies for their respective portfolios.

The earnings which are being reported were realised in an environment market by political anxiety (both post and pre-election) and the early stages of economic retardation that saw GDP growth which had previously been forecast at 6,5 percent being revised to 3,5 percent.

The results that have been released by most listed companies are testimony of the suppressed environment and performance; margins came under pressure from suppressed activity as did revenue lines while overhead costs remained strong.

Suppressed earnings and a weak operating environment will suppress momentum on the local equities market, which will continue to experience the current trading patterns marked by a bearish trend.

Foreign portfolio participation which was at 60 percent in 2013 remains the backbone of market activity, contributing over 72,3 percent of the total turnover for the first 2 months of the year showing the lack of ability and appetite from the local investors.

Year to date the mainstream industrial Index has lost 7,7 percent at 186,50 as at March 13, 2014 while the mining Index has shed 28 percent at 33,16 points as at the same date, to June 2014 the mainstream Industrial Index is likely to have lost between 12 percent and 15 percent around 177,86 points while the mining Index is expected to be carrying a YTD loss of around 22 percent at 34,5 points.

From the handful of companies that have released results so far only a few have reported growth in earnings and even fewer have expressed optimism for the ensuing year.