How does one manage to maintain an optimist outlook in the face of such stock market aberrations? Is the decline in the stock prices a reflection of the political risk emanating from the liberation struggle party win or it’s a correction that was overdue?
Is it uncertainty emanating from a delay in the Cabinet appointments? Bullish Thoughts is having difficulties appreciating what effect an ideal Cabinet structure would achieve for the market.
There are two key components at stake here: Willpower & money.
Would the best Cabinet turn around the economy based on willpower alone or it will all eventually boil down to capital access (money)?
Bullish Thoughts thinks everything will eventually boil down to ability of the government to access external capital markets…itself a tall order given the country’s external debt position at more than $10.7bn.
The Indigenisation capital raise framework in the manifesto of the ruling party also require that someone should have the cash to buy the assets or capitalise the businesses to sweat the resources.
With the global commodity prices rout and rising costs of production, are foreign investors going to be very keen for JVs worse still with a heighted country risk premium?
What is the ZSE pricing....
Bullish Thoughts wonders what the ZSE bearish trend is pricing. The equities market capitalisation came off 22% in August though it is still 17% up on a YTD basis. Industrials lost 22%, heavy caps Delta, Econet and Innscor also lost ground retreating 27%, 28% and 22% respectively in the month of August.
Second tier stocks were not spared either with Dairibord declining 30%, OK Zimbabwe down 30% and BAT down 30%.
Many analysts were pointing to the fact that the market was overheating ahead of the harmonised elections and was overdue for a correction.
The prices are falling but it seems no one is pointing towards a correction perhaps due to the “resounding loss” that has been witnessed in the month of August alone.
Yes, we are all agreed that the almost record turnover of $54m witnessed on the ZSE is largely attributed to foreigners exiting the local stock market but again were the same foreigners not overly exuberant in the beginning?
Bullish Thoughts feels sorry for those Greater Fools who bought Delta at 157c, OK Zim at 31c, Innscor at 118c and BAT at 1402c.
Elections or no elections, one wonders what drives such investment decisions.
Furthermore, the interim results for half year to June 2013 have started coming to the market and what a mess they are!
Negative growth if not outright losses are the order of the day. Only banks appear profitable largely on the back of non-funded income simply because you can’t default on this one.
But the NPLs continue to be the sector’s Achilles Heel and for the banking sector at least the market was not too overconfident perhaps due to instability at a number of local banks.
The operating performance for the companies is not so good, bank deposits are declining, inflation is falling on the back of low disposable incomes and everything “that can smoothly go wrong is proceeding to do so”.
Bullish Thoughts is thus thinking that whilst the market decline may have been worsened by foreign selling, it is probably largely reflecting weak corporate performance and a subdued economic outlook and the current fundamentals do not seem to be supporting a platform for a bullish ZSE in 2013 good Cabinet or no good Cabinet!
But then they are just thoughts.
The Human Aspect at ZSE Listed companies…
While still looking at listed companies, Bullish Thoughts felt it is necessary to just look at how quality of management affects the performance of companies.
When trying to select shares to buy, it is easy to overlook the human aspect. But it is people who give life to the numbers, business models and product offerings of an organisation. It is people who make the decisions and take action. And it is people who craft strategy and allocate capital.
Ultimately it is the people in a business who determine its success or failure. Thus as investors, it is imperative to understand and have confidence in the people managing the companies we are investing in.
It is executive management who exercise the most profound influence over a company’s fortunes, as they have the power to direct its human and financial resources.
In order to find out whether management does indeed possess the desirable traits, you’ll need to study the business histories of each member of executive management. Important questions need to be asked such as: Who are they and how did they get to where they are? How have they fared in good and bad times? What impact have they had in other roles or businesses?
How a company performs serves as a marker as to the attitude and competence of its leaders.
Management competence is one of the critical traits. Many talk of Joe Mtizwa, the former CEO of Delta Corporation as a person who had exceptional competence.
Bullish Thoughts reckons its early days to judge the competence of Washington Matsaire, the current CEO of TSL and past CEO of Standard Chartered Zimbabwe and formerly acting Chairman of Standard Chartered Botswana.
The competence requirement essentially asks whether management possesses the skills, knowledge and understanding to run the business effectively. Before investing in a company, carefully examine management’s experience and track record in making strategic, operational and financial decisions.
A competent management team displays a deep understanding of the company’s products, customers and financial attributes. Look for evidence of this in company presentations and management statements. The chief executive especially must display a thorough understanding of all areas of the business.
Bullish Thoughts like many others always find it slightly uncomfortable when a CEO refers basic financial questions to the financial director during results presentations. The CEO should have a firm handle on all numbers in his business, be they financial, key performance indicators or market shares. How else is he/she able to make informed decisions?
Two areas of competence especially important is management’s track record in allocating capital, and how they have behaved during challenging times. It is critical that management is rational in its allocation of capital – that is, it spends the company’s resources on projects and assets that generate suitable returns.
Most management teams are able to do well in boom times. It is the lean times however, that reveal true skill and ability. A number of managers have failed to steer the ship in post dollarized Zimbabwe.
The Zimbabwe corporate history books are already filling up with balked operations and Judicial Management alerts for both listed and unlisted companies.
Challenging conditions reveal who has had the foresight to implement robust and resilient operating and strategic models. Competent leaders prepare for both good and bad times.
Unfortunately for most in Zimbabwe, the bad times are just proving to be too bad!
Invest Wisely!
Bulls n Bears Invest Wisely!
bulls@bulls.co.zw
www.bulls.co.zw
bulls@bulls.co.zw
www.bulls.co.zw
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