ZSE soars, baffles watchers

One of the country's leading stockbroking firms has expressed dismay at the results that are being released by most listed companies. Sagit says just when every economic indicator is pointing in the wrong direction, most local companies appear to be doing the complete opposite. They are significantly increasing profitability and returns to their shareholders. Listed companies that have reported so far, have recorded earnings growth well ahead of the official year-on-year inflation rate, which stood at 198.9 percent in December, the end of the current reporting period, but has since gone up to 220.9 percent.

"In some cases the spectacular earnings were achieved on the back of minimal sales growth, and even declining sales volumes," Sagit says. "The increased businesses profitability is mainly attributed to effective cost control and the pricing system. We believe companies are not only aiming to beat the official inflation figure, but also the realistic inflation rate which is believed to be ranging well above the 300 percent mark."

The key industrial index had surged to 182 266 by March 7 an increase of 78 percent since the beginning of the year while the mining index had risen by 101 percent to 13 098. Though both indices dropped, with industrials falling to 163 122 and minings to 12 225 by March 14, this was still an increase of 59.3 percent and 87.3 percent respectively, since the beginning of the year.

Both indices have since started picking up as returns on the money market are still low. Interest rates have firmed a little with most banks raising their minimum lending rates but with inflation now above 220, the money market still offers negative returns of over 150 percent.

Sagit says the financial sector, which was punished for its mediocre results in 2001, seems to have recovered. It says while the 2001 interim earnings were mainly derived from interest income, those for 2002 seemed to be mainly derived from asset re-valuations.

"We suspect that some banks took large foreign currency positions at low prices and by the end of the year that currency had appreciated by up to five times the original value. With no permanent solution in place to enhance foreign currency inflows, we foresee the foreign currency factor remaining a good source of income for banks," it says.

Sagit also says what was originally announced as an export incentive scheme has finally become a 1398 percent devaluation of the local dollar. The overdue devaluation appears to have been well received by the market, although it was a mere officialising of the blend rate that has been prevalent in the market.

However, it says, the move is going to have a significant negative impact on the official inflation rate because all along the basket of goods used to calculate inflation was made up of price controlled products which did not factor in the widely used exchange rate.

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