Bloomberg Bullish On Zimbabwe Stock Exchange

Zimbabwe Stocks May Soar as Bourse Reopens in Dollars (Update1)
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By Janice Kew

Feb. 20 (Bloomberg) -- Zimbabwe shares, battered by the world’s highest inflation rate and a decade-long recession, may rebound after the stock exchange reopened yesterday from a three- month suspension with listings re-denominated in U.S. dollars.

While prices are bound for an initial fall as investors who were prevented from selling seek an exit, shares will probably more than double by year-end, according to the Harare-based unit of Renaissance Capital, the investment bank with brokerages in ex-Soviet and African countries. Companies are priced at a third of their breakup value on average after an 86 percent drop in the two months before the Nov. 21 shutdown, said BoE Private Clients, South Africa’s second-biggest private-client asset manager.

“There is an opportunity purely based on the discount to valuation of corporate assets,” said Thomas Chataika, a Zimbabwe-born fund manager who helps manage more than $6 billion at BoE in Johannesburg.

Zimbabwe’s central bank suspended shares as inflation estimated at 89.7 sextillion percent by the Cato Institute, a plunge in the Zimbabwe dollar to 12.6 trillion per U.S. dollar and international sanctions against President Robert Mugabe’s regime caused the economy to collapse. Reopening the exchange was one of the first steps by the coalition government formed last week as part of a power-sharing agreement between Mugabe, 84, and opposition leader Morgan Tsvangirai.

Phones, Beer

Only $30 of shares traded in the hour the exchange opened yesterday. Apex Corporation of Zimbabwe, an engineering and steel manufacturing company, was the only stock that traded, with 3,026 shares bought and sold at 1 cent each, according to price lists e-mailed by Kingdom Stockbrokers Ltd. in Harare.

“It wasn’t really communicated that the exchange was going to reopen and I don’t think the general public were aware,” said Chataika. “It will take about a week for the market to trade properly as the stocks still need to be re-valued in dollars.”

Today’s trading began at 10 a.m. and lasted for 1 1/2 hours, Kudzai Gambinga, a trader at Kingdom, said in a telephone interview. The exchange will move to two trading sessions once there is enough demand, he said.

Chataika, who has about $3 million in Zimbabwe stocks, said he plans to buy Econet Wireless Holdings Ltd., the country’s biggest mobile-phone operator, Delta Corp., Zimbabwe’s largest beer and beverages maker, and Kingdom Meikles Africa Ltd., the Harare-based owner of TM supermarkets, the biggest retail chain.

Economy, Sanctions

“Everyone there is despondent, and drinking,” said Chataika, 31, who lived in Zimbabwe until 2005. “Even if it takes time for the economy to show real growth, people still communicate, eat and drink.”

Econet and Delta, both based in Harare, are also top picks for Dzika Danha, a strategist at Renaissance Capital.

“When it comes to phones, penetration is very low at about 13 percent, and so there is a lot of room for growth,” Danha said in a telephone interview from Harare yesterday.

Zimbabwe is in the grip of an economic crisis that’s left more than half of the African nation’s 11 million people in need of emergency food rations, according to the United Nations World Food Program. A quarter of the population has fled the country. The U.S. and European Union imposed sanctions including freezing government assets and travel bans to show disapproval of Mugabe’s rule.

Cost Incentives

Reserve Bank of Zimbabwe Governor Gideon Gono ordered the shutdown of the stock exchange citing allegations that some traders used fraudulent checks totaling “60 hexillion” Zimbabwe dollars to buy shares. Eleven companies and nine individuals had their accounts frozen in November.

Tsvangirai, 56, was appointed prime minister on Feb. 11, ending an impasse with Mugabe’s Zimbabwe African National Union- Patriotic Front that began last March after disputed elections deprived Zanu-PF of its parliamentary majority for the first time since it took power in 1980. Tendai Biti of Tsvangirai’s Movement for Democratic Change became finance minister.

To spur trading, stamp duty on purchases and sales of stocks has been cut to 0.5 percent from 2 percent, according to Netsai Muyaka, a trader at Harare-based Kingdom Stockbrokers Ltd. A withholding tax of 5 percent on sales was also removed, according to Renaissance.

‘Discovery’

“Trading costs have been reduced and this is a good signal,” said Chataika at BoE. “It says that the new finance minister is trying to realign trading with international norms.”

Tsvangirai will seek $1 billion of aid from South Africa in talks with President Kgalema Motlanthe today, the Johannesburg- based Business Day newspaper reported, without saying where it got the information. Motlanthe’s office declined to comment.

Renaissance sees a 60 percent probability of the Zimbabwe Stock Exchange All-Share Index soaring 150 percent this year, a 30 percent likelihood of a 50 percent advance, and 10 percent odds of a 250 percent surge, according to a report published yesterday. Shares gained 56,436 percent on the Zimbabwe Industrial Index, part of the All-Share Index, in September in Zimbabwe dollars, according to Bloomberg data. The currency was re-dominated at the start of February at one trillion per U.S. dollar.

“Trading on the exchange is going to be a process of discovery in the first few days as investors try and figure out the dollar value of their shares,” said Danha at Renaissance. “Those who want to trade will also have to open foreign- currency accounts so that they can trade in dollars. There will initially be sellers who need cash.”

To contact the reporters on this story: Janice Kew in Johannesburg at jkew1@bloomberg.net.

Last Updated: February 20, 2009 06:28 EST
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