Rather Sad week

This week has started out on a depressing note for me. Sam Mtukudzi, a promising young man passed on after a freak car accident on Monday morning. He was a musician and son to Oliver “TUKU” Mtukudzi. I watched Sam perform on a few occasions and his performances were wonderful and stood out as his own. His father Oliver drew me out to him and the first time I watched him perform I like everyone else saw a bright and colourful future for the young man. The loss of Sam is a very painful one. In fact it is tragic. Yet life must go on. My heart goes out to Oliver’s family. Tuku’s music has special meaning to me.

Anyway, back to the markets where value traded on the ZSE picked up somewhat last week. We saw daily trades of over $1.2m from as little as $360,000 the previous week. There are a number of reasons for this, the first being that the industrial index is down 10.79% since December 2009 and mining shares are down by 14.4% over the same period. So investors may be looking at stock prices and chasing bargains again. When one drills down the detail, there are most certainly a few bargains to pick. We will look at some of these later.

The second and most important reason is that there has been some improvement in liquidity in the stock market. This sounds more credible. Following the authorities’ move to allow PPC to be traded on the JSE, unconfirmed reports say 6m shares have already been moved out and at a price of $4.31 per share that’s a cool $26m that could potentially be chasing shares on the ZSE. Trades have certainly picked up and there have been a few big trades in the last week or two mostly in Old Mutual, NMB, Interfresh, Econet, CFX, Dawn, OK, and Delta, which is evidence of some portfolio restructuring.

The third reason, albeit not so important right now is still linked to the second. The tobacco selling season has increased the number of trading days and so far over $7m worth of tobacco has been traded. The filter through effect of this could also be seen in the picking up of value traded on the stock market. An improvement in liquidity remains the key to unlocking value on the ZSE.

I want to add a forth reason that may indirectly be leading to a picking up of trades on the market. Though not plausible, it is my hope that investors, (especially foreign) see it that way. When the empowerment law came into effect on the 1st of March 2010, no company was taken over as most feared would happen. Ok, that is a bit dramatic, I agree! But my point is that investors are a little more comfortable about the law now that it is being discussed openly and the politicians are interfacing with the public to elicit their views. The rumour milk is suggesting that a truce has been reached and exemptions given to ZSE listed companies. I can’t confirm this but hey, there is no smoke without fire, they say and I agree. Whatever is happening, it is clear to me that the current law will not proceed and be effective in its present form, because it has too many flaws and will be amended to take into account a few important things such as:

1. Definitions (who qualifies and what levels)
2. Property rights protection
3. Funding Structures and capitalization
4. Level of ownership
5. Creation of jobs and economic value addition
6. Constitution of a body to ensure transparency and accountability

My final reason why there seems to be life in the stock market once more is the fact that Mr. J. Zuma is in the country following dinner with the Queen and British officials two week ago. Call it the “Zuma Factor” if you want. Mr Zuma, who is current chair of SADC is in the country for a two and half working visit (Fairly long, wouldn’t you say. He is not expecting things to be easy but he is showing deep commitment by staying this long). A way forward must be found but it will not be easy. The three parties to the GPA are failing to agree on how to proceed. Elections as early as next year have been mentioned.

I think I have dwelt enough on the reasons for the sudden burst of life on the ZSE. Those of us who like to buy and hold for a return on the stock market will have watched some counters drop day after day since the beginning of January 2010. The worst hit are Pelhams - 69%, Afrisun - 63% Ariston - 54%, Caps - 52%, Red star - 50%, General Beltings -50%, Art - 47% , Nicoz - 45%, CFI - 43%, Fidelity - 42%, Zimre - 40% Meikles -39%, Truworths - 38%, Radar -38% , Mash – 33%, Falgold -31%, PGI -29%, Star Africa -27%. The list is not exhaustive. But you get the picture. Most of the counters have had a fair share of problems, be they capital, markets or shareholder related. If I was asked to pick any counters out of these battered ones, I would have to say Mash and Truworths have no reason to be languishing with the rest! Their results prove it. The next batch I would take out of the worst performers’ basket would be Afrisun, Star Africa and Art because they are doing something to change their fortunes by recapitalizing.

Still some money has been made on the ZSE since the beginning of January 2010. Much of it in unlikely counters! Powerspeed +67%, ZPI +50% PPC +42%, Zimplow +20%, Astra Industries +20%, Colcom +17%, FBCH +14%, Steelnet +14%, Border +13%, CBZ+10% TSL +8%, Apex +8% DZL +7%, Chemco +6%, TN +5%. So there you have all has not been gloomy on the ZSE after all!