Analysis: Investors see value on Harare bourse after nine-month fall

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Helen Nyambura-Mwaura Johannesburg

Zimbabwe’s stock market has fallen so far from last year’s peak that some investors are stepping back in to scoop up consumer-oriented African growth plays.

A rebound in the country’s economy between 2010 and 2012, after a decade-long slump, spurred Zimbabwe’s benchmark industrial index to a record high of 233.18 points in August last year.

Disappointing economic growth since then in a country that is rich in gold, uranium, platinum, diamonds and coal has deterred investors, until recently.

After hitting a trough in April, the benchmark has rallied 7 percent in the past six weeks to just above 177 points and foreign investors, who account for about 60 percent of activity on the Zimbabwe Stock Exchange, bought a net $37 million (R392m) in shares in the first four months of the year, latest exchange data show.

“The big attraction is that valuations have been falling, reviving opportunities for investors who have not traditionally invested in Zimbabwe to buy stocks at really good prices,” said Grant Flanagan, the managing director at Amigo Partners, which has a Zimbabwe-dedicated equity fund.

“Despite the overriding strain the economy is taking at the moment, the very good businesses will continue to grow stronger and they make a compelling investing case.”

The World Bank predicts Zimbabwe’s economy will expand by 3 percent this year, half the government’s forecast of 6.4 percent and compared with 10.5 percent growth two years ago.

As businesses grapple with electricity and capital shortages, and the mining sector remains susceptible to changes in government policy, equity investors continue to be highly selective on Zimbabwe.

They prefer the country’s biggest consumer-oriented companies such as cellular service provider Econet Wireless, brewer Delta, an affiliate of SABMiller, and food retailer Innscor, which are seen as well managed and have an expanding consumer base.

A weak rand is also benefiting the consumer sector as South Africa is the source of most of Zimbabwe’s imports.

Polarisation of the stock market has been a trend since foreign investors returned in force after the country abandoned the Zimbabwe dollar in favour of the US dollar in 2009 to overcome hyperinflation.

The industrial index has rallied 70 percent since 2009 while the mining index has sunk by a similar margin, hit by President Robert Mugabe’s Indigenisation and Economic Empowerment Act in 2008.

The law, which forced foreign mining companies such as Rio Tinto and Anglo American Platinum to sell at least 51 percent shares to black people, continues to create uncertainty and the mining index, which includes Rio Zimbabwe, has plunged 27 percent this year.

Finance Minister Patrick Chinamasa said last week that Zimbabwe would demand 100 percent local control of its minerals and land under planned changes to the empowerment law.

Allan Gray has two Africa funds with 25 percent invested either in Harare-listed stocks or in companies with operations in Zimbabwe but listed elsewhere.

Harare’s total stock market capitalisation, at $4.47 billion in April, has more than halved since 1997 before the economy began a downward spiral on concerns over Mugabe’s economic polices. Many investors are still staying away. – Reuters


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