2011 proved difficult for Zimbabwean equities

The ZSE performed poorly in 2011 as the Industrial index eased 3.6% while the Mining Index slumped  49.8%. The poor performance can be attributed to the scarce liquidity, unclear policies around economic empowerment & indigenisation and the Eurozone crisis. The unstable geopolitical environment in the Middle East and North Africa led to increased risk aversion and together with the Euro-zone debt crisis led to a reduction in the total funds being availed for investments in perceived "riskier" emerging markets. Consequently, the market retreated although on thin volumes in normal trade as daily average value traded amounted to approximately US$ 1.9m representing an average market turnover of a mere 0.04%. Foreigners were net buyers in 2011 and accounted for 71% of average daily turnover.

Although the prices of most heavyweight counters remained fairly steady, AICO which went up a marginal 5.6%, Econet down 16.1%, Barclays down 53% and Meikles down 64%, disappointed. Most of the smaller cap counters, however, recorded stronger returns and topped the movers. The bottom laggards for 2011 are generally characterised by massive undercapitalisation, unattainable gearing levels, poor management and boards of directors.

While the crystal ball is difficult to read at this juncture given the uncertainities, we believe that the ZSE valuations are generally attractive. In our view, that the ZSE still carries good long-term growth potential given the economy's strong growth prospects, albeit off a low base. Nonetheless, the economy remains hugely undercapitalised with most companies still saddled with heavy and expensive borrowings. In our view, volatility will likely stay high until the local uncertainties clear and the Eurozone and US financial crisis stabilize. In that regard, investors should ride the speed humps that will slow the progress of the indices down, remembering to maintain a careful selection policy.