Is the Stock Market A barometer of Economic Activity

Meeting with a few analyst friends of mine last week spurred me to take time to renew my BLOG! Thanks Guys you know who you are! Many will wonder whether i am still in the thick of things, i.e following the ZSE and the Zimbabwean economy in general. I am very much involved and over the last 6 or so months since i last said something about the ZSE, a lot has happened. That makes it easier for me to jot down a few notes of what i think is happening and were i see things going.

Just like the happenings on the political front, which as we all know have a tendency of overshadowing everything else in the economy, Investors have completely ignored what is happening on the stock Market. The reporting season ended two months ago without incident despite the fact that we saw some brilliant numbers from all blue chip counters including some middle-tier stocks.

I will probably not need to look at the counters that posted results, because as i write we are already expecting a number of results to start filtering through the market. Believe me they always do! Forget the talk about insider trading being punishable. Year in Year out results leak and this is seen via unexplainable price movements. A price that has been on the up suddenly drops and as it drops no-one wants to buy it yet a number were willing to buy it at higher prices and so on.

Being a fan of Technical analysis, I see a number of trends being recycled and this year something is a bit different. There are very few signs of a bullish trend developing for both industrial and mining counters. Every Mid-July/through to end of August the market turns. WHY? Heavy weights post good results and in many cases give a dividend. The Minister of Finance, sometimes the Governor of the Reserve bank announce a policy shift that spurs the market. There is always something! That something appears to be overshadowed presently by something many analysts are too familiar with at the moment! LIQUIDITY CHALLENGES.

Yes! the placement of Renaissance Merchant Bank under curatorship last month after a hole yet to be properly quantified, but believed to be above $18m has done some damage to confidence in the markets. Money market rates that had found a level around 10% have risen sharply to between 15-20% on money market fixtures of between 14 to 90 days. Although it is thought the RMB problem is contained, investors are not taking any chances. It seems that many have withdrawn their money from banks and structures and are either keeping it under the pillow or busy "stashing" it outside the country. Who knows really what is going on. Whatever it is that has led to rates spiking, it must be reversed by restoring confidence back into the banking system and the economy as a whole.

You see what has also been happening now that there is a liquidity crunch is banks and people who are owed money are now trying to recover their money by realising the security they had been given to secure the loans. This explains to a degree the fact that we have seen a number of counters becoming oversold. Old Mutual ($1.49), RioZim ($1.10), Econet ($4.72) CBZ (16c), Hippo ($1.15) Seedco ($1.22). Meikles (32c) If you look up results for these companies save for RIOZIM and Meikles you will see some good numbers.

Counters that have been on an impressive run are DZLH (peaked at 30c now 29c), TPH now(15c), Turnall (14.5c, BancABC (peaked at 70c now 65c)