Bulls n Bears Daily Market Commentary : 18 October 2021

Mon Oct 18 19:41:53 CAT 2021

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Bulls n Bears Daily Market Commentary : 18 October 2021

 <mailto:info at bulls.co.zw> 

ZSE commentary

The ZSE market rally continues this week headlined by blue-chip and mid-tier
counters. Investor sentiment, as measured by market breath was positive as
19 stocks registered gains against 14 losers while five of the active stocks
remained unchanged. Activity levels were near flat at 466 trades with a
share volume of 5.25 million shares. Delta and OK Zimbabwe were the most
active stocks at 36 trades each followed by Econet at 32 trades. Ariston
anchored volume aggregate trading 747 100 shares and Innscor anchored value
aggregate with a value of ZW$53.6 million.

The All-Share Index gained 1.94% to 10 802.39 points. The Top 10 Index added
2.26%. The Top 15 Index gained 2.28%. The Medium Cap Index added 1.36% to 22
173.09 points whilst the Small Cap Index also added 0.27% to 322 356.90
points. Leading the risers pack of the day was Axia and Proplastics adding
11.78% and 7.46% respectively. Delta added 6.28% and National Foods added
5.48% to 160 813.91c. OK Zimbabwe added 4.26. Mitigating the gains were
losses in Nampak  and First Capital Bank which shaded 8.28% and 5.77%
respectively. Bindura lost 4.49% to 520.55c. Hippo and Simbisa Brands pared
3.19% and 2.71% respectively. The Old Mutual Top Ten ETF closed at 399.62c
up by 0.05% after 62 384 units were traded worth ZW$249 296.-wealthaccess

Global Currencies & Equity Markets

South Africa

Rand trades weaker overnight against the US greenback

THE rand made further gains on Friday, despite the country waking up to some
concerning news on the political front, according to NKC Research.

The holding hostage of two members of the Cabinet and a deputy minister will
come as a shock to the ANC-led government facing growing discontent, which
is increasingly finding expression in violent protest action.

Last week's real economy data was a mixed bag but would have disappointed
more than surprised. This week we will get an update on price pressures. We
maintain our view that inflation will average at the midpoint (4.5 percent)
of the target range this year.

At the close of local trade on Friday, the rand quoted 0.93 percent
stronger, at R14.62/$, after trading in a range of R14.62/$ to R14.79/$. The
rand traded weaker overnight. The expected range of the rand against the
dollar today is R14.50/$ to R14.80/$.

The JSE All Share (+0.27 percent) ended higher on Friday as the local bourse
benefited from a rise in global risk-on sentiment, after lower US inflation
figures and a strong round of earnings boosted sentiment. Gains in
technology (+0.96 percent) and industrials (+0.75 percent) countered the
losses recorded for financials (-0.33 percent) and resources (-0.12
percent). The share price of Mediclinic rose by 11.39 percent on Friday
after the group announced that all of its divisions have returned to
pre-pandemic revenue levels.

Brent crude oil

The Brent oil price rose on Friday, trading close to the $85/pb mark. Prices
were enhanced by an outlook that there will be a supply deficit over the
coming months due to an increase in demand spurred by an easing of
coronavirus-related travel restrictions. At the close of local trade, the
Brent oil price quoted at $84.7/pb. Crude prices traded higher during Asian
trade this morning.

BUSINESS REPORT

Nigeria

Naira Depreciation And 2022 Budget

Regrettably naira depreciation does not hold any assurance of better things
economically for Nigerians. There is the obviously misguided and unrealistic
call that the naira be devalued in expectation that matching "official rates
with parallel market exchange rates will attract foreign investors or ensure
competitiveness of the Nigerian economy". Conversely, foreign investors are
'smart guys' investing chiefly in economically and minimally risky but
high-yielding Nigerian government's bills and bonds. Out of the ordinary,
financial experts and liberal economist have not been able to connect this
in sub-Saharan Africa

Disappointingly, the production base alongside the exporting sector that was
supposed to be the saving grace to naira depreciation is in comatose. In
between, the manufacturing and allied fabrication sectors are less
competitive, as serial naira depreciations of the past have determined
higher production costs.

11 persons killed in Kwara road crash

NIGERIA DAILY: How the IPPIS is Causing Uncertainty in Universities

Furthermore, our bubbling cottage industry in the countryside has shrunk
significantly, courtesy of rising importation of everything including toilet
tissue papers. Interestingly, the consequent explosion of all these has made
the government drive for economic diversification and promotion of
made-in-Nigeria goods unable to go beyond rhetoric.

In the past, the CBN spontaneously devalued the naira to reduce widening
space between official and parallel exchange rates, even when these gaps
were knowingly caused by the artificial, monopolistic market dynamics of
demand and supply. Instructively, despite a series of naira devaluations,
Nigeria's economy remains neither diversified nor internationally
competitive.

On the contrary, the broad gap between the official and parallel naira rates
may have instinctively prompted the remark that Nigeria's economy will only
become competitive if the naira is devalued and brought closer to the street
market rate. Today as I put this piece together, the naira exchange rate
from the official CBN exchange platform is N410=$1,while at the unofficial
platform it is being exchanged at N565=$1.

This has exposed a mass of citizens to deepening poverty, unemployment and
high cost of living. Still with the news in town that our foreign reserve is
hitting $42 billion US dollars, one is not sure if the increase could be
sustained before the end of the year.

>From the above state of affairs, the 2022 Appropriation bill, tagged Budget
of Economic Growth and Sustainability, totalling N16.39 trillion was
presented to the joint session of the National Assembly by President
Muhammadu Buhari.

The budget is predicated on a conservative oil price benchmark of 57 dollars
per barrel and a daily oil production estimate of 1.88 million barrels per
day. However, the exchange rate is N410.15 per US dollar; and projected GDP
growth rate is 4.2 per cent and 13 per cent inflation rate.

Meanwhile, the allocations to MDAs still followed the usual ritual lead with
defence and security taking N2.41 trillion (15%), infrastructure N1.45
trillion(8.9%), Education N1.29 trillion (7.9%) health N820 billion (5%) and
social development and poverty elimination N863 Billion (5.3%).

In the wisdom of the government, the above sectoral allocations were guided
by the strategic objectives of the National Development Plan of 2021 to 2025
which are: diversifying the economy, with robust MSME growth; investing in
critical infrastructure; strengthening security and ensuring good
governance; enabling a vibrant, educated and healthy populace; reducing
poverty; and minimizing regional, economic and social disparities. The
summary of the budget suggests recurrent expenditure stands at N6.83
trillion (41.7 %), whereas capital expenditure N5.35 trillion (37.72%).

Admittedly, the 2022 budget is impressive though N16.39 trillion may not be
enough for the enormous human and development challenges confronting us
today.

We must take into cognizance the naira exchange rate N410 to $1, to the 2022
budget oil revenue of N3.16 trillion, particularly, if the 2021 turbulent
challenges in the oil sector that lead to shortfall and poor performance of
oil revenue relative to the budget projection replicate. For instance, in
2020 from 2.07mbpd in Q1 down to 1.61mbpd 2021. A further decline occurred
in Q3 to 1.27mbpd lower than 1.38 mbpd recorded in July of 2021.

Another issue is the net inflow of foreign exchange rates from Q1 and Q2 of
2021, with overall balance of payments reading negative and the external
reserves due to heavy forex demand pressures and weak forex inflows.

Critically, external sector aggregates of the Nigerian economy matters a
lot, with our continued heavy dependence on the oil sector for export
earnings and external reserves accumulation. We must however acknowledge the
fact that to achieve a better budget performance, the heavy dependence of
the country on the oil sector for foreign exchange and government revenues
creates instability in the naira exchange rate.

Decisively shifting away from defective economic and budget management is to
consider reviving, revamping and restoring the productive sectors to achieve
higher competence output and viable manufacturing exports. That would in the
long run tidy up our nation's disbursement of scarce foreign exchange for
import of finished goods, especially, where many of these imported items
could be produced locally and reduce pressures on the naira.

The projected non-oil taxes estimation of N2.13 trillion is very diminutive
compared to the reality if the governments mull over on the real productive
sector.

Consequently, root causes of deliberate market disparity against the naira
must be addressed with stringent measures by the CBN in checking
round-tripping of forex amongst Deposits Money Banks (DMBs) to the parallel
market.

Tackling excess demands for foreign exchange, that substantial part of it
aimed at transferring funds out of the country that promote capital flights,
illegal financial outflow and money laundering is also essential.

We must, however, acknowledge the fact that a country's currency is
determined by the strength of her economy in terms of its production
capability, structure and diversification base. Therefore, the government's
support of local refining of petroleum products for domestic consumption and
exports is key to stronger naira.

Nigerians must be cautious of any wiles that recommend naira devaluation as
the remedy to our under pressure national currency. Rather,  full
implementation of the budget alongside oversight, evaluation and monitoring
must be put into effect.

 <mailto:info at bulls.co.zw> 

Global Markets

Dollar resumes upward March on higher yields; yen falls again

(Reuters) - The U.S. dollar gained broadly on Monday, rebounding towards a
one-year high hit last week as slowing economic growth in China and firmer
U.S. Treasury yields boosted the appeal of the greenback with the Japanese
yen among the major losers.

Three data points over the weekend, namely strong inflation data in New
Zealand, hawkish comments from the Bank of England and slowing growth in
China has reaffirmed the broad theme of rising inflation and slowing growth
in global markets.

Investors have chosen to trade that theme by buying the greenback against
its rivals while simultaneously dumping currencies of commodity importers
like Japan.

Latest weekly positioning data in currency markets showed hedge funds have
ramped up their net bearish bets on the Japanese yen to their biggest levels
since May 2019 while increasing their bullish bets on the greenback.

U.S. Treasury yields firmed on Monday, extending a trend in recent weeks
with five-year bond yields rising to their highest levels since February
2020 as investors ramped up bets that the U.S. Federal Reserve was preparing
to raise interest rates as early as next year.

The inflation outlook has also prompted expectations of earlier tightening
of global monetary policy, with Danske Bank expecting as much as two rate
hikes from the Fed in the second half of next year.

"For some time our central argument has rested on two factors coming
together to support the dollar, namely the moderation in global growth and
the Fed taking a gradual path towards eventual rate hikes," HSBC analysts
said in a note. "This occurred sooner than we expected."

The dollar index rose 0.1% to 94.05, edging it back toward last week's
one-year high of 94.563 which was the highest level since September 2020.

The yen was close to a new three-year low, with the dollar last up 0.1% at
114.36 yen, close to Friday's 114.47 level that was last hit in October
2018.

In New Zealand, where consumer prices zoomed higher at their fastest clip
since 2010, analysts said the central bank would need to stay the course on
its hiking trajectory even as the lockdown of Auckland was extended.

The kiwi jumped almost 0.5% to a one-month high of $0.7105 before easing
back to trade down 0.2% at $0.7056 after a decade-high quarterly inflation
reading.

Sterling slipped 0.1% to $1.3735 despite hawkish weekend remarks from Bank
of England Governor Andrew Bailey who said policymakers "will have to act"
as energy prices drive consumer prices higher.

In other data highlights, China's economic growth hit its slowest pace in a
year in the third quarter, with power shortages crimping factory output -
while in commodities, crude prices rose more than 1% to test 2018 highs.

The yuan eased slightly after the data. But taken together, China's
slowdown, power crunch and worldwide signs that pressure from energy costs
is hurting, seemed to turn investors broadly cautious as they brace for a
bumpy period.

In cryptocurrencies, bitcoin, riding high on hopes for U.S. approval of a
futures-based exchange traded fund that would funnel cash into the sector,
hovered just shy of its record peak of $64,895. It last bought $60,956.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold under pressure as dollar, U.S. yields rise

(Reuters) - Gold prices slipped on Monday, after investors took refuge in
the dollar due to rising inflationary pressures and as an uptick in U.S.
bond yields added to the downbeat mood.

Spot gold fell 0.2% to $1,764.40 per ounce by 1226 GMT, while U.S. gold
futures were little changed at $1,767.60.

Making gold less attractive to holders of other currencies, the dollar index
firmed, and U.S. benchmark 10-year Treasury yields extended gains as
investors ramped up rate hike bets.

A stronger dollar is "carrying more weight as a safe haven because of the
inflation angle, which drives up expectations for the Federal Reserve to
start tapering, and even to set the timing to raise interest rates sometime
next year," said Ricardo Evangelista, senior analyst at ActivTrades.

While gold is seen as an inflation hedge, it also contends with the
greenback for safe-haven status and reduced central bank stimulus and
interest rate hikes push government bond yields up, weighing on non-yielding
bullion.

Market participants are increasingly expecting the Fed to start tapering
asset purchases soon after solid increase in U.S. consumer prices.

Bank of England Governor Andrew Bailey, meanwhile, sent a fresh signal that
the British central bank is gearing up to raise interest rates for the first
time since the onset of the coronavirus crisis as inflation risks mount.

Elsewhere, spot silver fell 0.1% to $23.26 per ounce, platinum was down 1.2%
at $1,041.52, and palladium shed 3.3% to $2,005.16.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber)

Copper price at red-hot high

Cash copper on the London Metal Exchange closed up 4% to US$10,538 per
tonne, with global stockpiles at reported all-time lows.

Three-month copper rose almost 3% to $10,281/t, nearing its peak of
$10,747.50/t reached in May.

Adding to supply concerns due to energy shortages, copper bulls have also
pointed to the further delays and growing cost blow-out at the Rio
Tinto-operated Oyu Tolgoi copper-gold mine expansion in Mongolia. 

Shares in Turquoise Hill Resources (TSX: TRQ), which is the majority owner
of Oyu Tolgoi and controlled by Rio, fell 15% on Friday.

Copper producers Antofagasta rose 2.13% in London while in Toronto, First
Quantum Minerals (TSX: FM) shot up 8%, a day after announcing a new US$2.925
billion loan and credit facility.

At the smaller end of town, Mexico-focused junior GFM Resources (TSXV:
GFM.H) gained 87.5% on no news.

Finally, gold is worth $1,770 an ounce on the spot market.

INVESTORS DIARY 2021

Company

Event

Venue

Date & Time

National Unity Day

December 22

Christmas Day

December 25

Boxing Day

December 26

Public Holiday in lieu of Boxing Day falling on a Sunday

December 27

Counters trading under cautionary

ART

Seed co Int.

Starafrica

Medtech

Turnall

Seed co

Invest Wisely!

Bulls n Bears 

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DISCLAIMER: This report has been prepared by Bulls 'n Bears, a division of
Faith Capital (Pvt) Ltd for general information purposes only and does not
constitute an offer to sell or the solicitation of an offer to buy or
subscribe for any securities. The information contained in this report has
been compiled from sources believed to be reliable, but no representation or
warranty is made or guarantee given as to its accuracy or completeness. All
opinions expressed and recommendations made are subject to change without
notice. Securities or financial instruments mentioned herein may not be
suitable for all investors. Securities of emerging and mid-size growth
companies typically involve a higher degree of risk and more volatility than
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any companies referred to in this report. Other  Indices quoted herein are
for guideline purposes only and sourced from third parties.

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