Zimbabwe Financial Market Report: The rise of the limping Bull

The rise of the limping Bull

• Financial Market Report (19 July - 25 July 2007)

• Financial Market Report (29 June - 6 July 2007)

By Lance Mambondiani

“When any method for selecting stocks becomes popular, then switch to unpopular methods. Too many investors can spoil any share selection method or any market timing formula” – Sir John Templeton.

TABLE 1: FINANCIAL HIGHLIGHTS

	18 July 2007	20 July 2007	% Change
Industrial	31, 649,696.25	34,516,340.85	9.06
Mining	17,418,575.22	17,896,068.71	9.00

Source: Coronation Advisory

OVERVIEW

The frequent policy changes in Zimbabwe have turned the investment market into the unknown and the unknowable. The wisest investors of all times such as David Ricardo, John Templeton and Warren Buffet have earned extraordinary returns by investing on risk.

The last couple of weeks have seen an increase in command control economics, militarisation of price controls, arrest of business leaders for violation of price reduction orders and the banning of the importation of all controlled goods such as cooking oil and beef in an attempt to arrest stratospheric inflation.

The central bank has also announced that it will postpone indefinitely the monetary policy statement scheduled for next week to allow it to analyse the implications of the government price controls on money supply. Investing on such uncertainty is highly risky. In any economy such a cocktail of changes within a short time always results in a lethal dose of chaos-on-the-beach, causing any financial instrument to plummet.

However, profit is a premium paid on anyone willing to take a risk. Many investments that offer the potential of blinding returns are fairly risky, albeit to varying degrees. Although affected by the policy changes, it appears the ZSE remains the destination for high-risk investors seeking more excitement for their money. The reasons for this are fairly textbook, keep the money under your pillow, it becomes worthless, bank accounts are no better, investing it on the money market is close to inflationary suicide.

Companies have little incentives for investing in fixed capital improvements resulting in a speculative, asset-price boom. Regardless of policy shifts, investors may be jittery, but evidently they will still seek a home for their money. When investing on any financial instrument in Zimbabwe, the most important skill is having your ears on the ground and timing the market. The time of maximum pessimism is always the best time to buy. The time of maximum optimism is also the best time to sell.

ZSE UPDATE

Indications are that although the mixed bag of economic changes continued to impact on stock prices, the week ended on a recovery note. Investor concerns appear to have retreated. Significantly, stock prices also appear to have bottomed out, becoming too low for investors to attract any sellers and recover their costs. On average the market is now seeing significant gains across most counters. By this Tuesday 25 July, the market had surged 3,631,130.22 (10.52%) to close at 38,147,471.08. The index tracking below shows an encouraging recovery of the index.

FIGURE 1: INDUSTRIAL INDEX 19/07/07 TO 25/07/07

Source: ZSE

On close of trade Wednesday, the index retreated a marginal 551, 593.16 (1.4%) reflecting mixed trading. However, volumes remain thin indicating that investors are still exercising caution. We recommend that investors buy on value to cushion themselves against fluctuations.

TABLE 2: ADVANCES & DECLINES

Last week we recommended NMB and ZIMSUN as some of our top picks. Investors who followed this advice would have had a ROA of between 50-60% in a week. The counters were among the biggest movers.

STOCK MARKET OUTLOOK

The postponement of the monetary policy statement will add to uncertainties in the market. Short-term direction will remains unpredictable. The market however appears to have factored in the risk of price controls and other policy changes. We expect the rest of the month to experience a ‘limping bull run’ towards the release of financial results in the second quarter.

ZPI – IPO results

Despite being affected by the adverse economic conditions, the IPO was oversubscribed as expected. The Zimre Property Investments (ZPI) became the 81st counter on the ZSE. The IPO raised $554 billion from 369 444 444 shares. The counter started trading on Monday 23 July with an initial 3,6million shares traded at $2 000 each.

Immense value may be realised on ZPI based on capital appreciation and rental income. During runaway inflation, where interest-bearing securities become meaningless, property hedging becomes an attractive option. This explains the excitement over property based IPOs with the Pearl Properties IPO opening on Monday 23 July 2007.

Pearl Properties IPO Opens

Pearl Properties, a subsidiary of First Mutual Life opened its IPO in which it is seeking to raise about $1 trillion in what will probably be the biggest deal of the year. The IPO is offering for sale 238 157 310 ordinary shares with a nominal value of $0,05 each at a subscription rate of $4 200 per share. Stanbic Bank Ltd, Premier Banking Corporation, FBC Bank Ltd and the ZABG underwrite the offer.

As at last month, Pearl Properties owned 41 developed properties, valued at $4,142 billion. No doubt, the Pearl offer will create unprecedented excitement based on the deal-making prowess of its chairman – Patterson Timba. IPOs have always been an exciting method for investors to secure significant returns on the exchange. Historically, IPO prices have always appreciated on euphoria, leveling on stability and retreating on normality. Remember the TRUST, and KINGDOM IPOs. We recommend this as a BUY.

TABLE 3: PEARL IPO TIMETABLE

Opening date of IPO:	Monday 23 July 2007
Closing date	Friday 10 August 2007
Announcement of results	Tuesday 21 August 2007
Proposed listing date	Wednesday 22 August 2007

EXCHANGE RATES

Parallel exchange rates remained unchanged this week.

Indications are that the ZWD: USD rate is still hovering somewhere between Z$195 000 and Z$200 000 and Z$330 000 to the Pound. The exchange rates appear to have been affected by the cancellation of fuel coupons and the banning of imports by the government. Although this is likely to increase shortages of commodities and fuel in the short term, it is expected that the currency prices will stabilize or continue to shed off slightly on the back of fewer corporate buyers and less activity due to policy uncertainty.

Lance Mambondiani is a Director of Coronation Financial Holdings, a financial advisory company registered in the UK. He can be contacted at coronation.uk@btinternet.com or on +44 790 329 3227
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The foregoing has been prepared solely for information purposes only based on independent research by Coronation, no representation or warranty; express or implied is made to its accuracy or completeness. Coronation therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. To discuss any of these investment options in detail please contact Coronation Advisory
Coronation © 2007

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