eBusiness Weekly
Enacy Mapakame
Penny and mid-tier stocks are enjoying a fine run, leading year-to-date gains at a time big cap counters are succumbing to selling pressure.
Despite the challenging economic environment, characterised mainly by limited foreign currency, poor electricity supplies and inflationary pressures, stocks in media, hospitality, banking as well as pharmaceuticals and medical supplies have survived the headwinds that have seen the market fall of recent.
In other countries, penny stocks are also known as cent stocks or small value stocks whose shares trade at a low value per share while in big markets, they can be less than a dollar while others below US$5.
These are highly speculative, come with high risks but also have potential for high returns and this has proven so on the Zimbabwe Stock Exchange (ZSE).
Since the beginning of the year, pharmaceuticals firm, MedTech shone the brightest with a 1 650 percent jump to 0,35 cents followed by hospitality group, RTG that put on 259,8 percent to 8,6 cents.
Largest banking group by assets and deposits, CBZ Holdings put on 254,8 percent to 55 cents. The banking sector is, however, anticipated to remain under pressure from tightening liquidity, rising inflation and the interest rate caps at sub-inflation levels that will pose some challenges including further capital erosion.
Harare brokerage firm, IH Securities, says the inflationary pressures may also see the minimum capital requirements reviewed upwards for the banking sector in line with the depreciating currency.
While the liquidity challenges experienced in the country have an impact on firms’ ability to pay their obligations to banks, market watchers still see potential in banking stocks such as FBCH and NMBZ that have since beginning of the year rose 72 percent and 31 percent respectively.
Hospitality group, African Sun has also enjoyed a fine run since beginning of the year registering 245 percent increase to 34,57 cents.
Diversified and largest media group, Zimpapers put on 233 percent of value, wrapping up the top five risers on a year-to-date basis.
The media group has been riding on the strong performance achieved in financial year 2018, the year it became a fully integrated media house with the coming on board of the Zimpapers Televison Network (ZTN). This is in addition to the re-opening of Typocrafters under its commercial printing division helping contribute towards job creation.
Other penny stocks, Willdale and Unifreight have put on 187 percent and 112 percent respectively. Market watchers are of the view that although such stocks can be volatile, the biggest value stocks will be those in agriculture and agro-processing driven. Agriculture oils the Zimbabwean economy accounting for over 60 percent of the raw materials required in manufacturing industry.
Going forward, the economy is anticipated to remain inflationary on the back of the exchange rate depreciation.
“The near-term outlook is austere, dominated by; a fragile political space, utility supply and cost constraints, tight liquidity as well as excessive inflation. The confluence of these factors weighs on the aggregate earnings outlook.
“Prospects of an economic recovery hinges on a calm political environment and continued efforts of re-engaging with the mainstream international community,” said Old Mutual Investment Group in their monthly economic brief.
