Stocks rally as investors seek a safe haven against weak economic fundamentals

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  • Turnover was 60% above December in nominal terms and 56% up in real terms
  • ZSE All Share Index closed at 45% recovering from December losses
  • Surge in equities occurred in the fourth week of January, rising by 32%

Trading activity on the local bourse in January picked up both in nominal and real USD terms stretching the gains to three straight months.

Turnover for the month under review stood at ZWL305 million indicating a 60% growth from the previous month in which turnover was ZWL216 million. January’s turnover was 80% above the monthly average for 2019 in nominal terms.

In real terms, the value of trades adjusted for the exchange rate losses jumped 56% from the December outturn to US$17.5 million.

According to Equity Axis, “the surge in equities demand was on the back of an increasing allure for stock based on undemanding relative valuations. This has triggered an early rally on the stock market in turn driving values of trades up.”

Investors are betting against sharper exchange losses which will be lower than gains on the stock market. In 2019 stocks lagged exchange rate losses resulting in negative returns.

Although trades post month-end have subsided, it is Equity Axis’ view that most counters including those that have rallied so far in the year are undervalued thus creating opportunities for further bargain hunters.

The ZSE All Share Index recorded the best January performance since dollarization in 2009 closing the month at 45%, recoiling from the December losses in which it registered -3%. January gains were the second highest monthly since 2010.

The sharp surge in equities occurred in the fourth week of January under which stocks scaled by 32%, propelled by heavy caps inclusive of Delta, Cassava and Old Mutual which gained over 50% each.

A remainder of the market traded stable before following heavies up in the new month of February.

“Despite the surge in stocks, we believe the stock market still has an enormous upside to help cushion against inflation and exchange rate losses.

“We believe that distortions arising from currency volatility have left a significant upside for stocks whose gap has widened with the fall in currency. Companies with value preserving businesses such as exporters and those operating in mature phases are better bets under the current environment.” says Equity Axis

Equity Axis News

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