Market watchers have warned investors to be cautious on the equities market as the inflationary pressures will cause economic volatility that cascades to stocks.
In their third quarter report, the Pulse Meter Quarterly Review, stockbrokers IH Securities sees consumer stocks as a preferred option as they have been experiencing real volume growth as seen from earnings reports released for both half year and full year performances.
These are expected to maintain growth in their trading volumes as consumer spend also improves on the back of increased economic activity coupled with relaxation of lockdown conditions during the last quarter of the year.
The likes of Innscor, Simbisa and Natfoods are seen performing well and maintaining growth trajectory seen in the full year to June 30, 2021.
For Natfoods, while the maize segment was depressed during the year and affected profitability, overall volumes rose by 15 percent and the group is upbeat of maintaining that growth on the back of improved efficiency as well as product range.
“The majority of stocks are in a bubble,” said IH Securities in the update adding this was not the time to generally pick any stock without careful considerations of the macro-economic environment and expecting to make meaningful returns.
“We caution against prescriptively applying historical performance to future expectations.
“The current run on the parallel market is not being accompanied by the same level of growth in inflation figures and it is happening in the presence of increased production unlike in the past.
“The current monthly inflation may well be in response to Government spending to stimulate the economy. Now is not the time to indiscriminately invest in any stock with the expectation they will all rise in response to inflation,” said IH Securities.
During the third quarter of 2021, month-on-month inflation was on an upward trend pushed by increased Government spending on agricultural inputs with the local currency gradually increasing by 8 percent in the first 3 quarters of the year on the back of an increase in money supply.
According to IH Securities the parallel market was considerably volatile gaining 27 percent over the quarter, the highest quarterly gain since the second quarter of 2020.
Said IH: “Consequently, the parallel market premium closed 3Q21 at 98 percent from 59 percent in 2Q21.