Bulls n Bears Daily Market Commentary : 14 October 2022

Fri Oct 14 16:50:42 CAT 2022

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Bulls n Bears Daily Market Commentary : 14 October 2022

ZSE commentary

The market ended the week on a positive note with the ZSE All Share Index
adding 240 points to close the Friday trading session at 13,831.97 points.
Major gains were recorded in DELTA CORPORATION LIMITED which traded $14.4535
higher at $226.9694, INNSCOR AFRICA LIMITED added $8.8459 to $281.0297
whilst HIPPO VALLEY ESTATES LIMITED  gained $6.0500 to $207.0000. AXIA
CORPORATION LIMITED was $2.5303 up at $58.0314 and SIMBISA BRANDS LIMITED
rose by $2.2671 to close at $171.4208.

The shakers were led by BRITISH AMERICAN TOBACCO ZIMBABWE LIMITED which
slumped by $3.5667 to $2,996.33, AMALGAMATED REGIONAL TRADING HOLDINGS
LIMITED lost $2.4356 to $17.5644 and NATIONAL TYRE SERVICES LIMITED went
down by $1.0000 to $12.0000. FIRST MUTUAL HOLDINGS LIMITED decreased by
$0.8400 to 25.8600 and AFRICAN SUN LIMITED traded $0.5417 lower to settle at
$16.9583. 

EXCHANGE TRADED FUNDS (ETF)

OLD MUTUAL ZSE TOP 10 added $0.0079 to $5.2079 and DATVEST MODIFIED CONSUMER
STAPLES ETF inched $0.0002 to $1.7102. CASS SADDLE AGRICULTURE EXCHANGE
TRADED FUND  , MORGAN & CO MADE IN ZIMBABWE EXCHANGE TRADED FUND and MORGAN
& CO MULTI-SECTOR ETF remained flat at $2.0000, $1.2000 and $24.0000
respectively.-zse

Global Currencies & Equity Markets

Zambia

Zambian Kwacha Now Stronger Than South African Rand

The Zambian kwacha is now stronger than the South African rand.

At about 09:20 am on Friday, one Zambian kwacha was worth R1,15.

At the same time, the rand traded at R18.20 to one US dollar, after it took
a beating at close on the previous day, due to the greenback strengthening
on the back of an expected interest rate hike as US inflation remained
elevated.

South Africa’s economy has been dealt blow after blow this year, while still
recovering from the Covid-19 pandemic.

The South African Reserve Bank has been on an upward trend of raising
interest rates, in an attempt to curb soaring inflation all year, with oil
prices see-sawing for most of the year, as well as dealing with the energy
crisis and rolling blackouts imposed by the state-owned ailing power
utility, Eskom, just to name a few.

Rand takes drubbing as dollar strengthens amid fears of looming US interest
rate hike

Minerals Council South Africa urges a speedy resolution to the damaging
Transnet strike

African Bank’s R1.5 billion deal to buy Grindrod Bank is ‘approved’

Yesterday, the rand breached the R18.50 mark. The annual inflation rate in
the US slowed for the third month running to 8.2% in September, the lowest
in seven months, compared with 8.3% in August, but above market forecasts of
8.1%.

As the latest US inflation print came in above expectations, investors
feared this might fuel further hawkish rhetoric by US Federal Reserve
officials to keep up with hefty rate increases.

This saw emerging markets currencies suffering losses in the financial
markets yesterday, as the fears drove risk-averse investors to safer havens,
with the dollar again approaching its highest levels in 20 years.

Meanwhile, Zambia’s kwacha gained 27% against the dollar this year, driven
by the election of Hakainde Hichilema.

Investors have bet heavily on the new government of that country securing a
bailout deal with the International Monetary Fund.

The rand, had already been dealt a blow by Wednesday’s US Federal Open
Market Committee minutes, which revealed the escalation in the hawkish tone
last month when members increased their interest rate hike forecasts in a
firm focus on lowering inflation.

Analysts said the rand was at risk of further losses now, as the South
African Reserve Bank (SARB) would take a cue from the Fed and increase
interest rates significantly at its last meeting for the year next month.

To date, the US Fed has hiked rates by 300 basis points, while the SARB’s
rate-hike cycle has encapsulated 275 basis points since it began in November
2021.

Ghana

Cedi hits ¢12.10 to a dollar

The Ghana cedi has breached the ¢12 to the dollar mark within just a week,
selling at ¢12.10 at most forex bureaus or the retail market.

A visit by Joy Business to some forex bureaus indicates that most of the
operators are selling the dollar for more than ¢12. They claim supply of
dollars has reduced significantly.

Again, the cedi is losing grounds quickly against the pound and euro. Whilst
a pound is going for about ¢12.70, one euro is selling at ¢11.10.

Within a week (October 10-October 14), the local currency has lost more than
6% value to the dollar. This means the year-to-date depreciation of the cedi
is hovering around 46%.

By this rate of depreciation, the working capital of businesses,
particularly manufacturers that depend on raw materials from overseas, have
gone down by about 46% since January 1, 2022.

Joy Business understands that some banks are even struggling to get dollars
to undertake transfer transactions for their clients.

For now, it’s unclear when the rapid depreciation of the cedi will cease.
But, the inflows of the expected first tranche of the $1.13 billion Cocoa
Syndicated Loan may help slow down the free fall of the cedi in the interim.

However, the finalisation of the ongoing negotiations between the government
and the International Monetary Fund for an economic programme will bring a
huge relief to managers of the economy.

This will not only give the country policy credibility, but will reassure
investors of macroeconomic stability going forward.  

1$ equals ¢11.62 as cedi depreciation pressures rise

The cedi sold for ¢11.62 to the US dollar yesterday October 13, 2022 in the
forex market, as the depreciation pressures continued unabated.

 <mailto:info at bulls.co.zw> 

Global Markets

Dollar edges higher, pushing yen to new 32-year low

(Reuters) - The dollar edged higher on Friday after dropping the previous
day despite U.S. inflation accelerating, helping it hit a 32-year peak
against Japan's yen.

Sterling slipped after a sharp rally on Thursday, as reports said British
Prime Minister Liz Truss was preparing to sack her finance minister and
carry out a major U-turn on the government's tax plans.

The dollar index was last up 0.35% to 112.97, having fallen 0.6% on Thursday
as investors seemingly brushed off data that showed U.S. consumer prices
increased more than expected in September.

The greenback has been on a tear this year as the Federal Reserve has ramped
up interest rates in an effort to tame inflation, pulling money back towards
the United States. Fears about the global economy have also boosted the safe
haven asset.

Yet, the stronger-than-expected inflation data on Thursday
counter-intuitively triggered a rally in global stock markets and a fall in
the dollar. Analysts suggested short-sellers reversing their positions
seemed to have driven the bounce in equities, weighing on the dollar.

"Some of the detail perhaps wasn't as worrying as the particular core
(inflation) print suggested, so when the market started to sell off, people
began to cover very quickly," said James Malcolm, head of foreign exchange
strategy at UBS.

But Japan's battered yen remained under pressure despite the brighter global
mood.

The dollar rose to a new 32-year high of 147.785 yen on Friday, and was last
up 0.34% to 147.705.

Last month, Japan intervened to buy yen for the first time since 1998.
Investors remained on watch for further intervention after finance minister
Shunichi Suzuki on Thursday reiterated the government's readiness to take
action against excessive currency volatility.

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset
Management, said he thought the yen could still hit 150 per dollar in the
near future.

"I don't think the Ministry of Finance is targeting any specific level or
line in the sand," he said. "What they are saying is they are trying to
prevent excessive volatility."

The British pound slipped on Friday, after rallying 2.1% on Thursday on
reports the government could cancel many of its plans for unfunded tax cuts.
Sterling was last down 0.77% to $1.1244.

The Times reported that Truss planned to fire Finance Minister Kwasi
Kwarteng, whose "mini" budget last month triggered chaos in markets and who
cut short his trip to the United States to return to London on Friday. Truss
was scheduled to hold a press conference later on Friday.

UBS's Malcolm said the biggest impact from any U-turn would likely be felt
in government bond markets, and backed the pound to recover next year after
slumping to a record low last month.

"For the FX market it's a little bit of a distraction," he said. "I would be
very constructive on a 12 month basis on the pound, and only a little bit
negative or cautious through the end of the year."

Focus now shifts to next month's Fed meeting where it is expected to deliver
a fourth consecutive 75-basis-point rate increase. Traders were also waiting
for U.S. retail sales data due at 1230 GMT.

The Australian dollar was up 0.1% versus the greenback at $0.6301, coming
off a two-and-a-half year low it touched in the previous session.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold, silver price falls hit project financing

Junior mining companies are struggling to raise funds to advance gold and
silver projects in Latin America, as falling prices weigh on equity
financing.

But any price recovery could see more financing deals crossing the line.

Gold has fallen to around US$1,700/oz in recent weeks, after trading broadly
in the US$1,750-2,000/oz range for around two years, while silver has fallen
to US$18-US$20/oz from US$22-US$30/oz.

The downward move has been largely driven by interest rate hikes in the US
and the strength of the US dollar, Trevor Turnbull, director, gold and
precious metals global equity research at Scotia Capital, told BNamericas.

And the impact on the mining industry is being felt the most among project
developers.

“The producers are still making strong margins and their balance sheets are
in really good shape,” he said. “Where this price is causing issue is with
companies that are trying to develop and need to finance.”

Equity markets – which normally provide part of the financing needed to
build mining projects – are virtually closed to these development-focused
firms.

Financings that have been completed have been on highly dilutive terms,
according to Turnbull. “The appetite for these deals is somewhat low, so
it’s making it really tough to complete the financing packages that
developers need,” he added.

STREAMS, DE-RISKING

One result has been heightened activity in the streaming space, with
companies turning to royalty and streaming companies such as Wheaton
Precious Metals in an attempt to begin to piece together financing for their
projects, Turnbull said.

With equity financing limited, companies are also focusing efforts on
de-risking projects, by getting permits in place and agreeing debt financing
terms.

“It is possible that in better market conditions [companies] would be trying
to move a bit faster,” he added.

PRICE REBOUND?

But the situation is likely to change quickly if gold and silver prices
begin climbing again.

Rather than reaching a particularly higher price, market participants will
want to see momentum and an upward trajectory in prices, which will boost
sentiment and get people excited, Turnbull said.

“We don’t need to see gold recover to, say, US$1,800/oz as much as you just
need to see it trending upward and you will see the markets reopen for
people looking for gold exposure,” he added.

And the change could be sudden rather than gradual.

“When gold moves, it could move pretty quickly in the upward direction, and
companies will take advantage of that window to finance,” he said. “You
could see the gold price start to rise and then a lot of financings that
have been waiting for better conditions.”

PRICE OUTLOOK

The outlook for gold and silver prices is favorable on many fronts.

Prices of gold have risen in many currencies globally, and a change in
investor sentiment could be coming.

“There’s some money that’s still happy to be in the broader market and
hasn’t looked for that risk-off trade yet where they might spend more time
thinking about gold, and ways to preserve capital,” Turnbull said.

“We just haven’t reached that point but we do think that will be coming.
There are a lot of the pieces in place for gold to go higher, but near-term
it’s all about the dollar.”

For silver, prices could be supported by growing industrial demand and
limited production growth opportunities.

Higher output could stem from the ramp up of new copper assets that produce
silver as a by-product, and by a potential restart of Pan American Silver’s
suspended Escobal asset in Guatemala, which previously produced around
20Moz/y silver. 

A consultation with indigenous communities required for a restart is
underway, but Turnbull does not expect operations to begin again until at
least 2025.

“We continue to see strength in silver, driven by economic recovery where
there would be more fabrication use for silver in electronics and some of
the solar stuff that is getting funded through the US and other programs,
but that has not really come to fruition in the price yet,” he added.

Scotia Capital expects gold prices of around US$1,800/oz next year, falling
to US$1,600/oz in 2024, with silver at US$24/oz in 2023, dropping to
US$22.50/oz the following year.

Latin America is a key producer of gold and silver, with Peru and Mexico
ranking among the world’s biggest miners of the metals.

INVESTORS DIARY 2022

Company

Event

Venue

Date & Time

National Unity Day

December 22

Christmas Day

December 25

Boxing Day

December 26

Counters trading under cautionary

CBZH

Meikles

Fidelity

TSL

FMHL

Turnall

GBH

ZBFH

GetBucks

Zeco

Lafarge

Zimre

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
the securities of more established companies. Neither Faith Capital nor any
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whatsoever for any loss howsoever arising from any use of this report or its
contents or otherwise arising in connection therewith. Recipients of this
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investigation into the business, financial condition and future prospects of
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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