Massive declines continue

HARARE - The false market which was deceiving investors into believing that stocks had tumbled and hit rock bottom and were on their way up once again, finally gave in after failing to sustain itself.


yText style=”MARGIN: 0in 0in 6pt”>By Tuesday the market had begun recording massive declines with some speculators beginning to ask for whatever price was obtainable for their shares. This state of capitulation actually accelerated the downfall. The industrial index lost close to 8% by Thursday before recording a marginal recovery on Friday.


The market continued to decline as the week came to a close. However by Friday it had began to record some gains in a few selected counters. This could mark the beginning of an upward movement though it is unlikely to sustain when the index reaches about 45 million points.


It has now been three weeks since the introduction of the new mechanism of calculating the interbank forex rate. The rate has remained static at $99,201.58 meaning that on each of the days less than US$ 5milion was traded. Should this continue it will have an effect of gradually overvaluing the local currency leading to a widening gap between the parallel market rate and the interbank rate, which takes the country back to the days of the auction system.


The bank rate was increased to 650% on Friday in response to inflation. The market also expects that the 180-day and 365-day Treasury bill rates will be increased this week. These developments could temporarily upset the upward momentum that was beginning to develop on Friday and lead to the market recording further losses in the first day of trading.


The week saw only 13 counters recording advances against 48 losses. Leading the gains in the week was Forestry counter BORDER, which put on an outstanding 550% from the last traded price of $2000 to close at $13000.


The stock is highly illiquid with the top three shareholders, Radar Holdings, Franconian Zimbabwe Investments and Kingdom Nominees collectively holding 97.25% of the issued shares. The stock had not recorded any trades in close to 30 days. The price of $13000 puts the company on a forward PE of 14 times.


After retreating in the previous week NATFOODS recovered and put on 35% to close the week firmer at $65,000. According to our forecasts this put the company on forward PE of 9.


The stock has been trading at a relatively low PE ratio in recent months as the business model is threatened by the downstreaming by GMB and the impact this will have on the business going forward.


PIONEER which published a cautionary announcement to the effect that the deal that had been referred to in the last 14 months’ cautionary statements had been concluded and were awaiting regulatory approval. This announcement together with the report on the possibility of the acquisition target being Unifreight spurred the share price up by 32% to $1710. Milk and milk products processor DZL advanced 20% to $30,000.

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