Bulls n Bears Daily Market Commentary : 07 March 2022

Mon Mar 7 16:11:44 CAT 2022

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Bulls n Bears Daily Market Commentary : 07 March 2022

ZSE commentary

The ZSE shares opened the week with marginal gains in a mixed trading
session characterized with low activity. Activity levels were at 513 trades.
Star Africa was the most active stock at 33 trades followed by Delta and OK
Zimbabwe at 28 and 27 trades respectively. Investor sentiment was positive
after the session yielded 18 risers against 15 decliners while six (6) of
the active stocks remained unchanged. Econet anchored both volume and value
aggregate trading 603,800 shares with a value of ZW82.87 million. 

The All-Share Index added 0.14% to close at 15,131.09 points. The Top 10
Index added 0.17%. The Top 15 Index also added 0.15%. The Medium Cap Index
was up by 0.06% to 24,784.70 points whilst the Small Cap Index shaded 0.30%
to 401,215.22 points. Leading the risers pack of the day was BAT closed at
324,500c and Lafarge  was up by 10.49%. FBC Holdings added 7.95% and Medtech
B added 6.25% to 3,400c. Zimplow was up by 5.64%. Mitigating the gains were
losses in Nampak and Seed Co which shaded 6.48% and 5.20%. Zimre Holdings
was down by 4.77%. African Distillers and Zimpapers shaded 3.77% and 3.25%
respectively. The ETFs traded 2,270,365 units worth ZW$4,670,044.75 in 168
trades. The Old Mutual Top 10 ETF added 16.60% to close at 832.71c while the
Morgan and Co Multi Sector ETF shaded 1.74% to close at 1395.61c. Datvest
MCSI ETF added 17.96% to close at 196.04c. On the VFEX, Padenga traded
275,721 shares to close unchanged at US$0.21.wealthaccesssecurities

 <mailto:info at bulls.co.zw> 

Global Currencies & Equity Markets

South Africa

South Africa's rand falls as Ukraine-Russia conflict weighs

(Reuters) - South Africa's rand weakened in early trade on Monday,
struggling to make significant gains despite strong commodity prices, as
concerns about the impact of the Ukraine-Russia conflict on inflation and a
global economic recovery weighed.

At 0630 GMT, the rand ZAR=D3 traded at 15.4000 against the dollar, 0.64%
weaker than its close on Friday.

South Africa is a rich commodity-exporting country and a rise in prices of
precious metals such as gold and platinum has helped limit losses in the
currency as the Ukraine-Russia conflict saps investors appetite for riskier
assets.

"The foreign exchange markets remain at the mercy of the unfolding
geopolitical situation," Nedbank analysts wrote in a note. "The rand has for
much of this scenario remained relatively resilient, although any gains have
been limited and not sustained."

Fighting in Ukraine intensified over the weekend and attempts at a ceasefire
to allow civilians to evacuate from the besieged city of Mariupol seem to
have so far failed.

Markets are bracing for the fallout from rising commodity prices,
particularly higher inflation which could pressure the U.S. Federal Reserve
and other central banks to quickly tighten monetary policy, just as the
world emerges from its pandemic slump.

On the local front, the focus this week will be on gross domestic product
data for the fourth quarter of 2021 due on Tuesday, as well as January
mining and manufacturing numbers on Thursday.

In fixed income, the yield on the benchmark 2030 government bond ZAR2030=
was up 3.5 basis points to 9.715%, reflecting weaker prices.

Zambia

High taxes hit Zambians in new Budget

As Zambia’s copper revenues dwindle government has now unleashed more taxes
to make up on the cash deficit.

Finance Minister Felix Mutati has announced steep increases in taxes
including Pay As You Earn (PAYE).

“r. Mr. Speaker, in coming up with the proposed revenue measures, I have
sought to increase the level of

domestically raised resources while at the same time ensuring that the
burden of taxation is borne equitably,” he told Parliament recently when
presenting the 2017 Budget.

Mutati added, “Mr. Speaker, many of our citizens and stakeholders have
implored the Government to take measures to ensure that the tax base is
broadened, made fairer and enhances domestic resource mobilization.”

While broadening the exempt threshold from K3,000 to K3,300 pay as you earn
has shot up from 35 percent to 37.s percent for those earning more than
K3300 and above.

The minister maintained the 10 per tax on rentals for housing units.

Zambians will also have to brace for new and raised Value added taxes on
imports which range from foodstuffs to motor vehicles.

Zambia is one of the countries in the continent with high taxes.

But the new taxes are n contradiction to the platform the current government
used to gain power in 2011.

Riding on the crest on public discontent founder of the Patriotic Front (PF)
Micheal Sata who died in 2014 promised Zambians to put more money in their
pockets.

He told usually euphoric crowds his administration would raise the standard
of living of the people by lowering taxes.

But after coming into power in 20 11 Sata as PF and national president
embarked on a countrywide construction and rehabilitation programme.

Under this exercise new universities, schools, hospitals, clinics health
centres and other infrastructures were constructed.

Bidding for re-election in 2016 Sata opened up more roads rehabilitated
hundreds, constructed bridges and rehabilitated fallen ones.

But his critics argue while these were noble projects and to the public
good, they were largely not budgeted for, while many of them were embarked
on without consulting the treasury.

Apart from that commodity prices fell affecting the Chinese economy and
mainly those countries that heavily depend on the Asian giant for trade.

On Zambia’s part Copper production fell drastically so were the national
metal revenues.

Second the local currency the Kwacha crashed to its lowest levels against
the United States dollar and other convertible currencies.

As if that was not enough drought swept through the entire Southern Africa
discharging a unprecedented lower crop yield in many countries in the
region.

The low level of water in many rivers including the Zambezi and the Kariba
dam dropped too.

The result of the low water levels at Kariba was the emergence of one of the
country’s most severe power shortages in the history of the 52 year old
nation.

The power deficit resulted in poor performance in industry including the
mines as ZESCO, the country’s power utility firm embarked on rationing of
electricity which in practical terms meant eight hour black outs daily.

Ghana

Ghana's Cedi Is Under Stress - Some Long, Medium, and Short Term Solutions

An economy with strong fundamentals is one that is resilient, has a
well-developed exports base, is industrialised, and creates jobs. That kind
of economy can mobilise resources domestically, without much reliance on
external support, and can even borrow at a lower cost. The citizens of this
kind of economy have good roads, good transportation, good health, and good
educational systems. They are well-resourced and free from civil unrest.

For decades, African countries have chalked up successes but these have not
been significant enough to transform their economies. Most countries on the
continent are still far from achieving these indicators of an economy with
strong fundamentals. They often export primary commodities and import
finished products.

The Ghanaian economy is no exception. It is still very much the Guggisberg
economy. Sir Gordon Guggisberg was a British empire colonial administrator
in what was then Gold Coast (1919-1927). He designed an economy to focus on
the export of raw materials and importation of finished goods. Hence the
moniker.

A century later, cocoa and gold are still Ghana's major exports. Ghana is
Africa's top gold exporter at 138.7 tonnes. It has since added oil and gas,
and some non-traditional commodities.

Ghana's reliance on exporting raw materials and importing finished products
contributed to the country's persistent demand for, and less supply of,
foreign currencies. This is why, for a long time, Ghana's cedi has been
depreciating against the other major trading currencies.

Why is the cedi depreciating so fast?

Ghana is an import-dependent economy. Because of this, the country continues
to buy foreign currency to meet its import demands, with less supply of
foreign exchange from its exports. Sometimes, the country records a net gain
with exports earnings exceeding import costs, but these are paper gains. The
actual money is repatriated by the foreign companies that operate in the
country. The retention law is not effective to restrain them from
repatriating all their profits.

The depreciation of the cedi has always been seasonal. It's at its worst
between February to March. This is the period during which Ghana-based
multinationals repatriate profits. Also, local businesses that had imported
goods on credit ahead of the Christmas season settle their debts. These are
the major causes of the cedi depreciation.

And the fundamentals have not improved significantly over the years.

The exchange rate was quite stable, especially during the peak of the
COVID-19 period (2020-2021), because imports slowed due to border closures
by most countries. But as of 28th February 2022, the Ghanaian cedi was the
worst performing currency among 15 top currencies in Africa, depreciating by
7.6% within the first two months of 2022.

So what has sped up the decline?

The first reason for the recent depreciation is the increased demand for
foreign currencies since most businesses in Ghana are now recovering from
the COVID-19 shock. This is not limited to Ghana. Most businesses globally
are recovering and getting into serious production.

The second reason is the country's inability to borrow from the
international capital market. Because Ghana isn't able to generate enough
foreign exchange through exports, successive governments have tried to
manage the depreciation of the cedi through borrowing from the international
capital market, issuing dollar-denominated domestic bonds, and depleting the
country's foreign exchange reserves.

Whenever Ghana's sovereign bond is no longer profitable and there are not
enough reserves to shore up the Cedi, the currency depreciates. The events
of March 2019 provide a perfect picture. That month the US Federal Reserve
increased its interest rate making it more profitable to attract investors.
Investors responded by selling sovereign bonds of developing countries like
Ghana.

The world economy is bouncing back after the pandemic, pushing global
inflation up. Inflation has moved from 3.1% in 2020 to 3.8% in 2022. The US
inflation has risen from 1.35% in December 2021 to 7.46% in February 2022.
The US Federal Reserve has responded by increasing the interest rate, making
US sovereign bonds very attractive. Many investors are now selling their
bonds in developing countries like Ghana to purchase those of
advanced-economies like the US.

Effects of the depreciation

Depreciation of any currency makes its imports more expensive and exports
cheaper. Some countries intentionally devalue their currencies to make their
exports cheaper. However, because Ghana's export sector is not significantly
developed, the country is not able to take advantage of the Cedi's
depreciation by exporting more and earning more foreign exchange. The effect
of currency depreciation has been an increase in the cost of imported goods.
Most of the imported goods are intermediate goods that are used for local
production. This has led to rising inflation.

For example, the ex-pump prices of fuel depend a lot on the exchange rate
since a greater part of the refined fuel is imported. Currently, there is
increased global demand for crude oil as most industries are now recovering
from the effects of COVID. At the same time, the supply of crude oil has
slowed down after the Russian invasion of Ukraine. The international crude
oil price is expected to continue increasing for some time.

The combined effect of cedi depreciation and increases in international
crude oil prices means that the ex-pump price of fuel in Ghana is expected
to keep rising, at least until the end of the year 2022.

In response to high inflation, the Bank of Ghana will increase its policy
rate in an attempt to control the growth of credit. This will lead to an
increase in the cost of borrowing. Higher borrowing costs will eventually
lead to increased costs of production, which will further increase
inflation.

Solutions

The long-term solution is for the country to industrialise, add value to its
exports, increase local production and cut down on imports so that there
will be enough foreign exchange in the country. The government's policy of
modernising agriculture, and the one-district-one-factory should be improved
to speed up the process of industrialisation.

The medium-term solution is for the government to be able to raise more
domestic revenue to be able to service its debts, and finance its
development without a heavy reliance on borrowing.

The short-term solution is for the government to borrow externally and bring
foreign currency into the country. This can only happen after the government
demonstrates to the investment community its ability to mobilise domestic
revenue to service debt.

As a matter of urgency, the government must revise the design of the
electronic levy (e-levy) and pass it within the shortest possible time to
access Eurobonds. According to the international credit rating agencies, the
passage of the e-levy and the reversal of the 50% benchmark values at the
ports will signal to international investors that government of Ghana is on
the fiscal consolidation path and that it can raise domestic revenue to
service its debt.

In the short term, government can also demonstrate its ability to mobilise
domestic revenue by paying attention to other sources of revenue such as
property tax, tax exemptions, and natural resources.

Adu Owusu Sarkodie, Lecturer, Department of Economics, University of Ghana

 <mailto:info at bulls.co.zw> 

Global Markets

Australian dollar defies Ukraine war jitters, tops US74¢

The Australian dollar extended its dominance at the start of the week with
the prospect of even higher commodity prices gaining the upper hand over a
fresh wave of risk aversion amid a possible US and European ban on Russian
resources.

The currency rose above US74¢ for the first time since November.

The local dollar is benefiting from Australia’s status as an energy exporter
amid wild gains in energy, agriculture, bulks and metals prices. 

The euro sank to fresh lows across the board, tumbling to just below $1.46
against the Australian dollar, a level last seen in 2017. The euro is down 6
per cent this year on fears European growth will be levelled by the war in
Ukraine.

The pound also suffered losses; it plummeted to a 10-month trough of $1.78
against the Australian dollar and traded at $1.75 at midday on Monday.

The Australian dollar was trading at US74.03¢ mid-session; such is the
Australian dollar’s resilience that it even held its own against the safe
haven yen.

It touched a four-month peak of ¥85.13 to stand at ¥84.92, a 1.5 per cent
gain last week. The local dollar is benefiting from Australia’s status as an
energy exporter amid wild gains in energy, agriculture, bulks and metals
prices.

The near-term prospect of a more dovish European Central Bank, which holds
its policy meeting this week, with a wave of risk aversion drove the German
10-year bond yields 32 basis points lower last week. US 10-year yields were
down at 1.71 per cent. Australian 10-year bonds retreated to 2.1 per cent,
but Australian 3-year bonds jumped to 1.56 per cent.

A stellar US jobs report failed to cheer the mood on Friday. The US
unemployment rate dropped to a two-year low of 3.8 per cent as jobs growth
surged in February, a bright spot for an economy facing headwinds from
inflation, imminent tightening by the Federal Reserve and geopolitical
tensions.

The oil market could tighten further with disruptions to Russian flows.

The Fed holds its two-day policy meeting on March 15-16 and bond markets are
fully priced in for a quarter percentage point move, and ascribe only a 5
per cent chance of a half a percentage point hike. They also imply a slower
pace of rate rises.

In Australia, interbank futures are fully priced for the Reserve Bank of
Australia’s first rate increase in July. The timing has swung between June
and August. They imply a cash rate of 1.17 per cent in December, translating
to at least four increases this year.

An ANZ Bank survey showed Australian job ads jumped 8.4 per cent in
February, from January, to reach a new pandemic high, and 1.8 per cent above
the post-delta variant peak. “This supports our view that labour demand will
continue to rise and competition for workers intensify,” said Catherine
Birch, senior economist at ANZ.

“With Australia’s international border reopening, the arrival of skilled
migrants, students and backpackers will increase the supply of workers. But
new arrivals will also add to demand for goods and services in an already
strong demand environment,” she said, adding, “competition for labour is
likely to remain elevated.”

 <mailto:info at bulls.co.zw> 

Commodities Markets

Palladium hits all-time high, gold tests $2,000/oz on Ukraine

(Reuters) - Palladium shot to an all-time high as Russia's invasion of
Ukraine and resultant sanctions stoked fear of scarcity, while gold tested
the psychological $2,000 mark in response to demand for safe-haven assets.

Spot palladium was up 10.2% at $3,308.49 per ounce by 1216 GMT, on course
for its biggest daily percentage rise since March 2020 having hit an
all-time high of $3,440.76 earlier.

"Palladium is reflecting deep scarcity, and anticipation of further scarcity
as things unfold in Ukraine and Russia," independent analyst Ross Norman
said, adding he expected the price rally to continue. read more

Western nations have piled sanctions on Moscow, driving prices higher across
a range of commodities. Russia accounts for 40% of global production of
palladium, used by automakers in catalytic converters to curb emissions.
read more

"Possible supply outages from Russia are still being priced in on the
palladium market," Commerzbank analysts said in a note. "As supply outages
could not be offset elsewhere, the market risks sliding into a sizeable
supply deficit."

Spot gold gained 1% to $1,988.46 per ounce, after scaling its highest since
Aug. 19, 2020 at $2,002.31 earlier in the session. U.S. gold futures rose
1.3% to $1,991.30.

"The severity of the war in Ukraine and the uncertainty around its future
trajectory have fuelled broad-based gold buying from safe-haven seekers,
pushing prices towards $2,000 per ounce," Julius Baer analyst Carsten Menke
wrote in a note.

"A further escalation would likely lift prices further. The latter would
likely have a more lasting impact, as it could push the world economy
towards a stagflation scenario, which we see as very bullish for gold."

Bullion is considered a safe store of value during such uncertainties and
also a hedge against rising inflation.

"In the current environment, I would expect $2,000 to represent little more
than a speed bump," Norman said.

Silver gained 0.3% to $25.74, while platinum was up 2% to $1,143.08.

Fears of a further hit to supply of the autocatalyst metal from key producer
Russia further squeezing tight market, say analysts

Register now for FREE unlimited access to Reuters.com

The Thomson Reuters Trust Principles.

Copper soars to record as metals surge on Russia supply fears

Metals are breaking new records with copper spiking to an all-time high and
nickel surging more than 16%, as soaring energy prices and fears of supply
shocks rattled commodities markets amid war in Ukraine.

The White House said it’s talking to allies about a possible oil embargo on
Russia, triggering a spike in oil prices and ratcheting up geopolitical
risks after its attack on its smaller neighbor. Higher energy prices mean
steeper costs for manufacturers including metals smelters, adding to supply
threats as commodity traders grapple with sanctions on Moscow.

Copper, used in power cables and wiring, rallied as much as 1.5% to $10 835
a ton, on the London Metal Exchange, beating the previous record high from
May last year. Russia is an important producer of copper, and its exports
account for some 3.3% of global output, according to JPMorgan & Chase Co.

Aluminum also hit a fresh all-time high with prices hitting $4 000, while
nickel surged over $33 000 a ton and palladium soared to a record.

Global copper supply was already under growing stress before President
Vladimir Putin ordered his military into Russia’s neighbor. The world’s
shift to renewable energies and electric transportation is poised to ramp up
the need for copper in coming years -- making the market sensitive to any
disruptions.

The copper market is “mispricing Russia supply risk,” as prices have had a
relatively modest reaction to the tightening risks seen from the invasion of
Ukraine, Goldman Sachs Group said in a note on Friday. The bank forecasts
prices will rally to a record $12 000 over 12 months.

Meanwhile, policy messages from Chinese Premier Li Keqiang’s latest National
People’s Congress work report are looking positive for base metals and
stocks.

Copper rose 1.1% to $10 796 a ton as of 10:07 a.m. in Shanghai, while nickel
gained as much as 16% to $33 650, the highest since March 2008. Aluminum
surged as much as 3.9% before trading up 3.2% to $3 973. 

INVESTORS DIARY 2022

Company

Event

Venue

Date & Time

Nampak

AGM

March 09, 9AM

Art

AGM

March 10, 2.30PM

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
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