Bulls n Bears Daily Market Commentary : 27 October 2022

Thu Oct 27 21:59:27 CAT 2022

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Bulls n Bears Daily Market Commentary : 27 October 2022

 <mailto:info at bulls.co.zw> 

ZSE commentary

ZSE records marginal gains.

The market closed in the positive territory as gains in selected heavies
helped lift the market. The mainstream All-Share Index went up 0.78% to
14838.12pts while, the ZSE Top Ten Index extended 0.60% to 8774.22pts. The
ZSE Agriculture Index advanced 1.60% to 76.60pts while, the Mid-Cap Index
rose 1.23% to 32.454.26pts. Banking group NMB topped the winners' list  s it
surged 10.09% to close at $24.0000 post the announcement that the bank had
acquired a USD$10m line of credit facility from the Eastern and Southern
African Trade and Development bank. Cigarettes manufacturer BAT jumped 5.98%
to $3,175.0000 as Proplastics put on 5.55% to $29.4958. Tea company Tanganda
shored up 4.94% to $85.0000 as tourism group RTG completed the top five
risers list of the day on a 4.71% lift to $8.0000. Partially mitigating
today's gains were losses in fintech group Ecocash that slipped 3.51% to end
pegged at $44.0474. Insurer First Mutual holdings shed 2.85% to $25.0000 as
scanty 200 shares exchanged hands. Property concern FMP trimmed 1.55% to
settle at $8.9000 while, agriculture concern Ariston slumped 0.85% to close
at $3.9661. Dairibord holdings held the fifth position of the fallers' table
on a 0.38% retreat to $49.7500.

Volumes of shares traded tumbled 64.62% to 1.69m as turnover succumbed
26.86% to $148.78m. Volume drivers of the day were Proplastics, Econet and
Ecocash that claimed 31.46%, 16.95% and 13.61% in that order. Value outturn
was anchored by Simbisa (23.98%), Delta (22.43%), Econet (16.37%) and
Proplastics (10.55%). Foreign outflows outstripped inflows in the session to
set a net funds outflow position of $54.48m. The duo of Datvest MCS and Old
Mutual ETFs traded sideways in Thursday's session as the former added 0.79%
to trade at $1.7437 while, the latter let go 1.35% to $5.4258. A total of
74,154 units worth $154,199.35 exchanged hands in the two active ETFs. On
the VFEX, Padenga dipped 7.51% to USD$0.2500 on 6,125 shares..-efesecurities

Global Currencies & Equity Markets

South Africa

Rand weakens against stronger dollar

At 09:43, the rand traded at R17.99 against the dollar.

The National Treasury said on Wednesday South Africa's deficits were seen
shrinking more quickly than before in the next three years, with debt
stabilising at a lower level, putting it in a stronger position for any
future economic shocks.

The rand's strong advance can't be fully attributed to the mid-term budget
so much as to mounting bets that a U S  Federal Reserve policy pause and
pivot is drawing nearer, economists at ETM Analytics said in a research
note.

"While signs of continued fiscal restraint and encouraging debt-to-GDP
forecasts in the Medium Term Budget Policy Statement were welcome, investors
are well aware of the risks to the government's optimistic outlook," ETM
Analytics added.

The government's benchmark 2030 bond was weaker in early deals, with the
yield up 3 basis points to 10.760%.

Nigeria

Nigeria: Naira tumbles to N770/$1 on black market as Emefiele redesigns
currency  

Nigeria's currency, the naira, has fallen to an all-time low, selling at a
rate of N770/$1 on the black market barely hours after an announcement by
the Central Bank of Nigeria (CBN) to redesign its three major denominations:
the N200, N500 and N1000 notes, The Africa Report can confirm. 

Before the announcement, the dollar was trading at N760. However, by the
evening on 26 October, it had hit N765 and has now reached an all-time high
of N770. The exchange rate has, however, remained stable at N437/USD1 on the
official market, which most Nigerians lack access to.

At a briefing, CBN governor Godwin Emefiele, expressed concerns over large
amounts of money outside the banking system, which is estimated at 80% of
the total money in circulation.

Emefiele said as of September 2022, N2.73tr of the N3.23tr in circulation
was outside the vaults of commercial banks.

He added that the currency in circulation has more than doubled since 2015,
rising from N1.46trn in December 2015 to N3.23trn as of September 2022.

According to the governor, the CBN has finalised arrangements for the new
currency to begin circulation starting 15 December 2022.

Even the British pound which is falling in other countries is rising in
Nigeria."

Emefiele said the new and existing currencies will remain legal tender and
circulate together until 31 January 2023 when the existing currencies shall
cease to be legal tender.

The governor said all commercial banks currently holding the existing
denominations of the currency may begin returning the notes to the CBN
immediately.

Bureau de Change operators tell The Africa Report that those with
questionable sources of wealth will most likely throng various BDC hubs to
change their money to FX. This will lead to an increase in the demand for
foreign currency and affect the naira in the short term.

"Naira has fallen by 10 points since the CBN made the announcement. The
demand for FX has already risen. Even the British pound which is falling in
other countries is rising in Nigeria. Don't be surprised if the dollar hits
N800 in the next few days. However, the naira will rise again after things
simmer down," an operator said.

Speaking to The Africa Report, Investment Banker and Economist, Adetilewa
Adebajo, said indeed there would be a temporary rise in demand for forex.

Adebajo, who is Managing Director of the Corporate Finance Group, said:
"People that have a lot of cash would want to change it to dollars. So, they
hold the dollar in cash and when the new naira notes come, they will change
it back to naira."

"Maybe the temporary thing is to see the exchange rate going up but
eventually, by the time the CBN has withdrawn all the naira, they would be
able to control how much money they put back," he adds.

The economist says this could be effective in tackling inflation, especially
in a country that is cash-driven despite advancements in e-payments.

Curbing money laundering

The CBN governor maintained that the new move would help curb ransom
payment. He said: "In view of the prevailing level of the security
situation, the CBN is convinced terrorism and kidnapping will be minimised
as access to large volumes of money outside the bank used as funds for
ransom payment will begin to dry up."

He adds that it would also reduce counterfeiting as well, saying recent
technological advancements have made it easy to make fake naira notes.

Don't be surprised if the dollar hits N800 in the next few days. However,
the naira will rise again after things simmer down."

The Economic and Financial Crimes Commission (EFCC) has hailed the move by
the CBN and promised to monitor bank deposits in order to tackle money
laundering.

The EFCC warned that it would "monitor the process to ensure that
unscrupulous players and currency speculators and their cohorts among the
bureau de change operators do not undermine the exercise."

It called on banks to be alive to their reporting obligations and not assist
unscrupulous customers in laundering suspected proceeds of crimes.

Nigerian law mandates all transactions above N5m for individuals to be done
within a financial institution while for corporate organisations, the limit
is N10m.

But Adebajo says the need to reduce inflation and the cost of logistics in
handling the naira is more pressing than tackling money laundering.

"The volume of the naira in circulation is quite significant so it is the
cost of managing this currency because the CBN has 36 branches across the
country and they have air charter that transports currencies across the
country.

"It is a major logistics operation managing cash in Nigeria today. The issue
with money laundering and vote buying are secondary," he adds.

2023 elections

The naira usually witnesses a drop in its value during election season in
Nigeria due to the rise in the purchase of FX as well excess naira
liquidity. Politicians are known to give money to voters during elections.

With the CBN's move coming less than four months before the highly
anticipated polls, would this reduce incidents of vote buying?

But Economist, Muda Yusuf, believes the new CBN move is a waste of
resources.

Yusuf, who is a former Director-General of the Lagos Chamber of Commerce and
Industry, tells The Africa Report that redesigning the currency would not
curb vote buying.

"Vote buying doesn't have to be by cash. You can transfer money to people's
accounts or designate PoS (Point of Sale) outlets to pay voters," he says.

Yusuf, who is the Chief Executive Officer, Centre for the Promotion of
Private Enterprise, adds that money laundering usually takes place through
the banking system and this would not suddenly stop because the currency is
being redesigned.

"Will terrorists not ask for new notes if they abduct people? Can't they ask
for dollars?" he asks.

"The cost of printing N3trn new notes would be too high. Consider the
logistics. This move has no effect on monetary policy. In any case, the cash
component of the money supply is less than seven percent. The money supply
is N48trn, the cash component is N3trn. So, what is the essence of this new
policy?" says Yusuf.

 <mailto:info at bulls.co.zw> 

Global Markets

Euro falls against the dollar after ECB rate hike, U.S. data

(Reuters) - The euro briefly fell back below parity with the dollar on
Thursday after the European Central Bank (ECB) raised interest rates, and
U.S. data showed that the world's biggest economy rebounded more than
expected in the third quarter.

The ECB raised its deposit rate by 75 basis points to 1.5%, the highest
since 2009, in an effort to prevent rapid price growth from becoming
entrenched, with further hikes almost certain as it unwinds a decade's worth
of stimulus.

ECB President Christine Lagarde said that while Russia's invasion of Ukraine
and other global uncertainties meant the euro area economy faced a number of
risks to the downside, inflation risks were skewed upward.

The euro , which had hit a one-month high of $1.0094 versus the dollar
earlier in the day, tumbled back below parity with the greenback after the
ECB rate decision. The single currency clawed back some of its losses
against the strong dollar, and was down 0.69% at 1.0011 at 9:50 EDT (1350
GMT).

"The dollar is rebounding in light of the stronger-than expected data and
the ECB emphasizing a gloomy outlook for the eurozone economy," said Joe
Manimbo, senior market analyst at Convera. "It's a reminder that nothing
fundamentally has changed in terms of the euro, and negative fundamentals
have put renewed pressure on the single currency."

U.S. gross domestic product rose at a 2.6% annualized rate last quarter, the
government's advance GDP estimate showed on Thursday, ending two straight
quarterly decreases in output, which had raised concerns that the economy
was in recession.

Economists polled by Reuters had forecast GDP growth rebounding at a 2.4%
rate.

Still, there were concerns that the data overstates the economy's health as
the Federal Reserve's aggressive interest rate increases curbed consumer
spending.

"Despite the shiny headline number, a look under the hood shows a much
grimmer picture of the U.S. economy, one that is clearly losing steam," said
Douglas Porter, chief economist at BMO Capital Markets. "With the full
effect of past and future Fed rate hikes still to be felt, the economy
appears poised for a modest downturn in the first half of next year."

The Fed is expected to raise rates at its Nov. 1-2 meeting by 75 basis
points to 1.5%, a 13-year high. It is also likely to reel in a key subsidy
to commercial banks.

"I think that a bit of profit-taking at this level is not unheard of," said
Alvin Tan, head of Asia FX strategy at RBC Capital Markets. "Since Monday,
the euro-dollar has gone up around 2.2%, so we've had quite a big move in
the dollar over the last two days."

The greenback had slid in recent days as investors have cheered signs that
the U.S. Federal Reserve is considering slowing down its aggressive rate
hikes in December. Yet reversal on Thursday was a natural bounce after a
steep decline, analysts said.

The British pound was down 0.24% against the greenback to $1.1599 following
a two-day rally on the back of Rishi Sunak being appointed prime minister.

Japan's yen dipped 0.04% to 146.320 to the dollar.

Trading in the Japanese currency has been volatile after suspected
interventions by the government to boost the ailing currency on Friday and
Monday.

On Wednesday, the Bank of Canada announced a smaller-than-expected interest
rate hike of 50 bps. The move has made investors even more alert to signs
that the Fed and ECB might be slowing down.

The Canadian dollar last traded 0.05% higher at 1.3546 per U.S. dollar.

 <mailto:info at bulls.co.zw> 

Commodities Markets

Gold prices edge down after dollar's rebound

Gold prices eased in choppy trading on Thursday as a rise in the U.S. dollar
offset support for the precious metal from expectations the Federal Reserve
will slow its interest rate hikes after a policy meeting next week.

Spot gold was down 0.2% to $1,661.25 per ounce, while U.S. gold futures
settled at $1,665.60, 0.2% lower on the day.

"Gold seems to be focused on the dollar and technicals here, along with an
element of profit-taking from yesterday," said Bart Melek, head of commodity
markets strategy at TD Securities.

The dollar rose 0.6% against its rivals after dropping to more than a
one-month low in the last session, making bullion less attractive for
overseas buyers.

Data showed the U.S. economy rebounded more than expected in the third
quarter amid a decline in the trade deficit, returning to growth after a
contraction in the first half of the year. Consumer spending, however, was
curbed by the Fed's aggressive rate increases.

Markets expect the U.S. central bank to raise its benchmark overnight
interest rate by another 75 basis points at its Nov. 1-2 policy meeting,
with a potential for a smaller increase in December. U.S. rate hikes
increase the opportunity cost of holding zero-yielding bullion.

"It's probably too early to talk about stopping rate increases ... we don't
expect a pivot because inflation will continue to be a problem through much
of next year," Melek added.

In addition to next week's U.S. monetary policy meeting, investors will
focus on the release on Friday of U.S. personal income data for September,
which will include the latest reading of an inflation measure closely
watched by the Fed.

Elsewhere, spot silver fell 0.6% to $19.51 per ounce, platinum rose 1.3% to
$963.38 and palladium was down 1.2% to $1,940.33. 

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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