In the 6 months period to June 2017 the ZSE sharply soared driven by market wide demand. The mainstream industrial index rose by 35.6% in the 6 months period spurred by gains in 40 industrial counters. All heavy caps with the exception of CBZ went up to support the rallying index. The mining index gained by 19.3% in the same period driven by gains in Rio Zim and Falgold. Bindura and Hwange trailed their year opening levels.

June recorded the highest monthly gain as the industrial index added 20.72% to close at 195.97. The gains followed a strong 46 sessions rally between April and June which is a record high for the ZSE. It is worth noting that the stock market closed in a loss position of -4.8% in the first quarter of 2017 only to rebound strongly in the second quarter over which it gained 41% . As shown on the chart above the gains on the stock market have been supported by strong buying in mainly heavy caps.

Current buying on the ZSE has been steamrolled by local demand. From the $115 million splurged on the stock market between January and June locals accounted for 76% of the total while the remaining 24% was attributable to foreigners. There is a persuasion in the market that the current buying is being pushed by diminishing yields in alternative assets and risk aversion in light of growing macroeconomic ailments. Yields from alternative assets such as the money market and property have gradually diminished while risk for the same assets has inversely risen driving the risk adjusted return even much lower.

The above trend shown a fluctuating but rising trend in turnover with June standing out as the top month in terms of value traded. The June out-turn at $40 million was more than double the May out-turn of $18 million. January recorded the least turnover within the 6 months period at $8.5 million. Average monthly turnover in the 6 months period stood at $19 million.

Foreign participation on the ZSE has been on a decline over the years. Foreigners now account for only a quarter of turnover on the stock market down from 47% in 2012. In 2016 foreign purchases accounted for 31% of total trades in the whole year showing a gradual decline in foreign appetite for local equities. Instead foreigners have been more dominant in portfolio divestment's with the January to June statistics showing a sustained month on month net foreign outflow position. This means in each of the months between January and June foreigners have sold more shares in value than they bought in the same period. March saw the widest net foreign selling position of -$6.45 million while the June net position stood at -$2.38 million.

Foreigners are concerned about Zimbabwe’s ability to remit proceeds of their disposed shares as well as dividends. With the growing liquidity crisis foreign settlements have become less fluid hence raising the risk of local assets a phenomena experienced across all businesses dealing with the outside world in Zimbabwe. Investors are still finding it difficult to repatriate capital gains and dividends. The bond note has likewise brought its own issues in terms of risk. The immediate allure of Zimbabwe’s stocks in a dollarized economy  was the US dollar denominated gains. There is now outside concern that the US dollar adoption in its fullness may no longer be sustained given the hard currency crisis facing the economy. The central bank has however repeatedly allayed those fears reiterating that the multi currency regime will remain in place and that bond notes limits at $200 million will be observed. So far circa $175 million has been released into the market.

Broadly we project a sustained rally on the ZSE  to the end of the year driven by market-wide gains. Buying will now largely be directed to mid and small tier stocks. This will therefore reduce the rate at which the industrial index will rise. Historically pre election trades have seen a huge jump in equities although the current rally came in earlier and the gains quite sharp. It therefore may imply a softening of the growth rate going forward. In our view fundamentals now lag  behind the average price levels and that mispricing of assets is unsustainable.