OLD Mutual Securities has predicted that listed companies with strong financial positions and foreign currency generation would withstand the equities market storm and do well in the coming year.
In a report titled Portfolio Manager’s Digest Q3 2022, Old Mutual Securities said while the second quarter of 2022 was positive, the gains were reversed by the stock market's poor performance during the review period.
Among factors driving bearish market sentiment was the central bank’s decision to hike its policy rates to 200%.
The ZSE appears to be materially undervalued, according to Old Mutual Securities, with a dollar market valuation of around US$2,61 billion at the official exchange rate, compared to an average of US$4 billion during the dollarisation period between 2009 and 2013.
"Fundamentals of underlying companies on the market are generally solid, registering double digit volumes growth,” the report said.
“The long-term outlook for equities remains bullish. In the short term, share prices may continue to move sideways to reflect the Zimbabwe dollar liquidity challenges. Companies that have strong financial positions and foreign currency generation are expected to weather the storm better and perform admirably in the outlook.
"Investors are expected to continue focusing on counters that have solid fundamentals such as strong foreign currency generation capability, dominate market position and strong balance sheets," it said.
The ZSE’s primary All Share Index (ALSI) fell by 25,37% in the third quarter.
Losses were caused by a strict stance on monetary policy, which has caused the market's supply of Zimbabwe dollar liquidity to dry up.
To a lesser extent, the introduction of gold coins in July helped the policy stance.
Despite the period's highly inflating environment, returns on the listed equities market were notably low, the report said.
It said the total value of shares traded on the ZSE in Q3 2022 was ZW$33,2 billion (about US$45 million), compared to Q2 2022 trades of ZW$34,55 billion (about US$47 million).
According to the research paper, foreign investors made up 22,54% of all trades and net sold $2,24 billion worth of shares on the stock exchange. Liquidity on the ZSE fell precipitously, from 8,3% in the second quarter of 2022 to 1,8% in the third quarter.
The All Share Index of the Victoria Falls Stock Exchange increased by 24,07% in the third quarter of 2016.
In comparison to the second quarter, when 23,99 million shares were traded for US$3,19 million, trading during the third quarter totalled just 8,43 million shares, worth US$0,60 million.
The ZSE bear market, according to Old Mutual Securities, also affected exchange traded funds (ETFs).
In the third quarter, the returns of four of the five listed ETFs were under 5%.
The Cass Saddle Agriculture ETF returned 107% during the quarter it was offered.
The Old Mutual ZSE Top 10 ETF (OMTT), which had a negative third-quarter return of 47,07%, had the worst performance.
The OMTT, which was trading at a discount of 7% at the end of the third quarter, was the most alluring ETF in terms of Net Asset Value (NAV) tracking.
The trading premiums for the other ETFs over their individual NAVs ranged from 70% to 200%.