With the key industrial index at a 12-month low of 7699 points on December 10, one of the leading stockbrokers says investors should not be running off to offload their investments in the equity market at any price.
The broker says certain equities had to decline after the interest rates were increased following the increase in the central bank rediscount rate of three percent but there are some stocks that will recover.
“Investors, particularly institutions, should bear in mind that you pay a high price for certainty and when things look like there is no possible upturn, that’s a good time to buy long-term investments,” the broker says. The broker says while the public may appear to be fed up with continued government excesses and poor policy decisions and while it may take some time before there is a move towards a sound economic policy, it will eventually occur.
“When it does, the first stocks to recover will be those in the retail and consumer sectors. Delta, particularly, but also Meikles, Rothmans, Edgars and Afdis offer good long-term value for local institutions at present prices”, the broker says. “These operations are in the right sector of the economy and have strong management.”
“Others that we believe are offering value at present include Seedco, Interfresh and Murray and Roberts.”
While business was worried about the increase in interest rates and the subsequent increases in fuel, sales tax, cost of electricity and the proposed 5 percent income tax levy for war veterans, it appears the government has given in to popular pressure on the 5 percent income tax levy.
According to another broker, the new levy would have increased the effective maximum tax rate for individuals from 42 to 44 percent and that for companies from 39.37 to 41.25 percent. The tax increases coupled with the designation of more than 1 500 farms, according to the broker, had brought fresh fears “about political uncertainty and comments that government was compromising food security, employment and investor image in a political gambit to ensure support for the ruling ZANU-PF Party at (its) annual congress. It was as if Zimbabwe had taken a step back to the political and economic uncertainty prevalent in the late 1980s.”
The key industrial index which had slumped to 8 297 by November 21, had risen to 8 773 by November 28 before slipping to 7 699 on December 10, a week after the publication of the list of farms due for designation and shortly after the announcement of tax increases.
But with the party annual conference over, people having prevailed over taxes, it will be worth watching how the market will respond. It must be clear to everyone that the government is not going back on the land issue and has even warned that it will not entertain being taken to court.
President Mugabe also argued that, contrary to arguments being floated around, there was no question of compromising food security.
But all in all, 1997 seems to have been “annus hirribilis” as one company director is said to have told a cocktail party hosted by his company. The key industrial index which by mid-year had reached an all-time high of 12081 had slumped to 7 699. The mining index whose last high was 1 565 was more than 1 000 down to 448.