Early September I got a distress call from one of the retail investors I am mentoring.
He had been doing some research on stock markets and had come across historical information that September is a bad month for stocks.
Rightly so, historically, September is known to be the bleakest month for stocks. Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8 percent, while the S&P 500 has averaged a 0,56 percent decline during the month of September.
The worst month of performance for the Russell 2000 is also September. This collection of small-cap stocks declined by an average of 0,43 percent each September dating back to 1979.
The September effect is not limited to US stocks, but is associated with most worldwide markets. Some analysts consider that the negative effect on markets is attributable to seasonal behavioural bias as investors change their portfolios at the end of summer to cash in.
With that historical information, my mentee asked, “should I hold or sell my shares before the carnage?”
Coincidentally, in the same week of his call, I had been doing my own research on the same subject. I had found out that while globally stock markets have performed badly in September, it was not the same in Zimbabwe. It is a close call though. Since 2009, September has closed positive eight times and negative five times.
So with that information, I told him whatever decision he was to make, in terms of holding or disposing of his shares, it should have nothing to do with the historical and international phenomenon that stocks struggle to perform in September.
There was no supporting evidence in Zimbabwe that stocks trade negative in September.
Look elsewhere for your decision making, I told him. I hope he did and made a wise decision. Fast forward to end of September, the ZSE had its best month this year. It gained 30,31 percent. Prior to this, the highest monthly gain was 17,53 percent recorded in June.
The September rally came as investors poured in $4,7 billion into the market, the highest monthly turnover this year.
Prior to that, March had the highest turnover of $4,5 billion. Year-to-date the Zimbabwe Stock Exchange has now gained 224,80 percent. Post September, we are expecting more of the same, a rally on the market, turnover in the first seven days of October has already hit a billion dollars.
The market capitalisation which closed at $1,032 billion in September, has already gone past $1,1 billion. If events on the currency front are anything to go by, and if corrective measures are not taken, the market overall market value could close the year at $2 billion.
The more the Zimbabwe dollar loses value, the higher the stock market will go to reflect its true valuation in US dollar terms.
Furthermore, with the crack down on foreign currency dealers and those abusing and speculating on the depreciation of the local currency, excess cash is likely to find its way to the stock market.
The country has limited investment options, at least ones that pay reasonable returns leaving the equities market and the property market as the most viable ones for hedging and real positive returns.
The stock market is, however, more liquid and less cumbersome to enter, hence it gets the lion’s share of investor funds. Increased demand for equities has thus helped push up share prices and expectations are that with the agricultural season upon us, there would be increased spending, and inevitably some of that cash will find its way to the stock market.
This year alone, more than $33 billion in turnover has found its way to the market. It was half of that the whole of last year.
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