Bulls n Bears Daily Market Commentary : 27 September 2023

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Bulls n Bears Daily Market Commentary : 27 September 2023

 

 	

 

 

 	


ZSE commentary

 

 

 

 <https://www.dulys.co.zw/> ZSE in marginal gains...

The ZSE maintained marginal gains in midweek session as the primary All
Share Index surged 1.42% to 121,932.02pts while, the Blue-Chip Index added
2.26% to 52,958.83pts. The Agriculture Index rose 2.22% to 505.01pts while,
the Mid Cap Index firmed 0.12% to 502,745.81pts. Bricks manufacturer
Willdale Limited headlines the winners of the day on a 14.97% jump to close
pegged at $9.0400, followed by construction group Masimba Holdings that
soared 14.29% to $800.0000. Tea producers Tanganda advanced 13.37% to settle
at $906.9667 while, Meikles gained 9.85% to $681.0606.

 

Beverages giant Delta capped the top five gainers' pack on a 3.73% uplift to
end the day pegged at $2,039.1808. On the downside, NMB led the laggards of
the day on a 14.80% slump to $215.5654, trailed by Nampak Holdings that
trimmed 10.71% to settle at $200.0000. Retailer OKZim eased 2.59% to
$120.9100 while, telecoms giant Econet retreated 2.21% to $488.2815.
Mashonaland Holdings completed the day's top five fallers on a 2.04% decline
to $137.1429. The market closed with a positive breadth as gainers
outnumbered losers by a count of one.

 

Activity aggregates were depressed in the session as volumes traded
succumbed 6.39% to 1.23m shares while, value outturn plummeted 35.92% to
$468.36m. The top volume drivers of the day were NMB (31.01%), Star Africa
(17.53%), OKZim (14.69%) and Delta (11.26%). The trio of Delta, NMB and
Econet drove the turnover after contributing 60.32%, 17.56% and 7.19%
respectively. On the ETF section, the MIZ ETF flopped 6.84% to $7.9000
while, the Old Mutual ETF lost 1.32% to $26.6426. The Tigere REIT inched up
7.24% to end the daypegged at $243.3955. 

 

 

Global Currencies & Equity Markets

 

 

South Africa

 

South African rand extends losses for the week

(Reuters) - The South African rand extended losses on Wednesday, after
tumbling the day before on the back of soaring U.S. Treasury yields.

 

At 1501 GMT, the rand traded at 19.1275 against the dollar , about 0.24%
weaker than its previous close.

 

The dollar last traded around 0.35% stronger against a basket of global
currencies.

 

On Tuesday, the rand lost nearly 1.7% against the greenback at one point on
the back of a surge in U.S. Treasury yields as investors turned away from
riskier assets.

 

 

"ZAR 'losses' this week are really just USD gains," said Rand Merchant Bank
analysts in a research note, adding that continued hawkish Fed talk has kept
alive the risk of another hike, strengthening the dollar.

 

The rand, like other risk-sensitive currencies, is often swayed by global
factors like U.S. monetary policy.

 

South Africa will release producer price inflation, money supply, trade
balance and budget figures for August on Thursday and Friday, which will
give clues on the health of the economy.

 

 

Shares on the Johannesburg Stock Exchange fell, with the blue-chip Top-40
index (.JTOPI) closing over 0.7% weaker.

 

South Africa's benchmark 2030 government bond fell, with the yield up 5.5
basis points to 10.830%.

 

 

 

 

Nigeria

 

How rate hikes, weaker naira hurt FMCG firms

 

A combination of rising interest rates and naira devaluation dealt a severe
blow to the financials of many fast-moving consumer goods (FMCG) firms as
their borrowing costs skyrocketed in the first half of the year.

 

BusinessDay analysis of the data from their financial statements show that
the total finance cost of 10 FMCG firms rose by 469.4 percent to N376.4
billion in H1 2023 from N66.1 billion in the same period of last year.

 

The firms are Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria, BUA Foods,
Nascon Allied Industries, Dangote Sugar Refinery, Nigerian Breweries,
Guinness Nigeria, International Breweries and Champion Breweries.

 

Finance costs, also known as the cost of finances, are costs, interests, and
other charges involved in the borrowing of money to build or purchase
assets.

 

Analysts say the increase in finance cost is as a result of the naira
devaluation in June and the rise in the benchmark interest rate, also known
as Monetary Policy Rate, which has been raised by 725 basis points to 18.75
percent since May last year.

 

 

This puts more pressure on the margins of FMCG companies, already dealing
with double-digit inflation rate and weak purchasing power of cash-strapped
consumers.

 

"The movement in interest rate and the devaluation impact are the two major
elements that are affecting the cost of securing finance for the FMCG
firms," Abiodun Keripe, managing director at Afrinvest Consulting Limited,
said.

 

He said the companies' bottom-line will be weaker and margins will become
slimmer, thereby affecting their profitability. "Volumes may not rise quite
aggressively or revenue may not increase at a faster pace."

 

Read also: FMCG operator stakes N100m prize for consumer campaign

 

Israel Odubola, a Lagos-based research economist, said the over fivefold
increase in borrowing costs shows that some of the companies had foreign
currency-denominated loans in their books and by the time the naira was
devalued, it increased the naira value of those debt obligations.

 

 

"Finance cost is a deduction in an income statement. So, it will weigh on
the profitability, which is what is happening. Most of the companies that
are multinationals are badly affected because they had FX exposure. Had it
been they took local loans, the increment in finance cost will not be up to
that," he added.

 

Dangote Sugar, Cadbury, three others post N132bn loss

A breakdown of the data shows that Cadbury Nigeria recorded the biggest
increase in finance cost of 22,394.9 percent to N21.8 billion from N96.7
million. Guinness Nigeria saw its finance cost jump by 2,401.9 percent to
N53.3 billion from N2.13 billion.

 

The finance cost of Nestle Nigeria surged by 1,878.2 percent to N137.73
billion. Dangote Sugar's finance cost rose by 1,140.2 percent to N90.7
billion, while that of Nigerian Breweries increased by 262.5 percent to
N11.2 billion.

 

Others are Unilever Nigeria, whose finance cost grew by 135.6 percent;
International Breweries, 127.9 percent; Nascon, 119.4 percent; BUA Foods,
54.0 percent; and Champion Breweries, 12.7 percent.

 

"Finance cost means that you raise naira to pay for dollars used to import
raw materials. The dollar will remain the same but the naira needed to
finance it increased. This is why some of them declared heavy losses,"
Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry,
said.

 

 

He added that coupled with the high cost of energy, manufacturers are not
having it easy at all.

 

Further analysis of the companies' financial statements revealed that five
of them - Guinness Nigeria, Dangote Sugar, International Breweries, Nigerian
Breweries and Cadbury Nigeria - reported a combined loss of N131.9 billion
in H1 2023, compared with a profit of N57.3 billion a year earlier.

 

"There were challenges faced in sourcing an adequate quantity of foreign
currencies from the official markets, resulting in a slowdown of business
operations when foreign currencies required to purchase production materials
are not available," Dangote Sugar said in a recent note.

 

Champion Breweries reported a decline of 3,600.1 percent in profit to N29.1
million. Nascon, BUA Foods, Nestle Nigeria and Unilever Nigeria posted a
combined profit of N153.8 billion, up from N70.5 billion.

 

The biggest problem for a lot of consumer goods firms was the FX losses,
according to Ayorinde Akinloye, an investor relations analyst at Seplat
Energy Plc.

 

"Apart from the increase in the cost of energy, which led to higher prices
in logistics, the FX pressures have the biggest impact on their
performance," he said.

 

The Central Bank of Nigeria (CBN) in June merged all segments of the foreign
exchange market into the Investors and Exporters window, and reintroduced
the willing buyer, willing seller model.

 

The naira has continued to depreciate against the dollar and other major
foreign currencies since then.

 

The official exchange rate increased from N463.38/$ to N747.76/$ as of
Friday. At the parallel market, the naira depreciated to N1,000/$ from
762/$.

 

The high cost of sourcing FX was one of the major factors that pushed
Nigeria's inflation rate to an 18-year high of 25.80 percent in August from
24.08 percent in July, according to the National Bureau Statistics (NBS).

 

 

A recent survey by the Manufacturers Association of Nigeria (MAN) showed
that manufacturing activities continued to suffer due to persisting scarcity
of forex and further depreciation of the naira.

 

"Only 14.7 percent of manufacturers enumerated claimed that the rate at
which forex was sourced improved in Q2; 66 percent disagreed while 19.3
percent were not sure if forex sourcing had improved in the quarter under
review," it said.

 

The association added that the lingering forex scarcity and continuous
depreciation of the naira have left manufacturers bleeding and limited their
capacity utilisation since the importation of non-locally produced critical
input has become a nightmare.

 

"The short-term remedy will require managing the floating exchange rate
system within an acceptable lower and upper bound, pending the actualisation
of a net-exporting economy," it added.

 

Higher prices dropped business activities for the third straight month to
50.2 in August, the lowest in five months, from 51.7 in July, according to
the latest Purchasing Managers' Index report by Stanbic IBTC Bank.

 

 

The latest aggregate Manufacturers CEO's Confidence Index of MAN also shows
that manufacturers' confidence in the economy dropped to the lowest in
nearly two years in the second quarter.

 

The index declined for the third straight quarter to 52.7 points in Q2 from
54.1 points in the previous quarter.

 

The challenging macroeconomic issues impacted on the manufacturing sector as
its growth rate slowed to the lowest in three years. According to the NBS,
the real GDP growth of the sector stood at 2.2 percent in Q2, the lowest
since Q2 2020.

 

"Manufacturers are procuring forex at a very high cost. They can't get the
quantities or amount of dollars needed to buy raw materials or machines at
the official market, so they are forced to the parallel market," Toye
Folosho, an official at MAN, said.

 

He recommended the government should do an emergency kind of rescue to
address the issue of forex by restructuring the economy.

 

Muda Yusuf, chief executive officer of the Centre for Promotion of Private
Enterprises, said the CBN should prioritise clearing the backlog of FX
obligations.

 

"The clearance of the backlog of forex obligations should be accorded high
priority to restore the confidence of domestic and foreign investors," he
said.

 

He suggested that in addition to the existing I&E FX window, the central
bank should "create an autonomous window in the banking system where the
currency can trade freely without any encumbrances."

 

 

 

 <mailto:info at bulls.co.zw> 

 

Global Markets

 

Dollar index climbs to 10-month high; yen, euro languish

(Reuters) - The dollar hit a 10-month high against a basket of major
currencies on Wednesday, pushing the euro to an almost nine-month low and
keeping the yen in intervention territory, as investors bet the U.S. economy
will outperform its competitors in an environment of high interest rates.

 

Benchmark 10-year Treasury yields continued to rise on Wednesday, hitting
their highest levels since October 2007 and keeping the greenback solidly
bid.

 

 

Strong U.S. economic data has defied investor expectations for a slowdown
and the Federal Reserve last week warned that it could raise interest rates
again and is likely to hold rates higher for longer.

 

"The U.S. is most able to cope with these new challenges - higher interest
rates and higher energy prices," said Marc Chandler, chief market strategist
at Bannockburn Global Forex in New York. "Even if the news stream from the
U.S. is not that great, it still looks relatively better."

 

 

The U.S. dollar index , which measures the greenback against a basket of
other major currencies, reached 106.84, the highest level since Nov. 30.

 

The euro dropped to $1.04880, the lowest level since Jan. 6. Sterling
reached $1.21110, the lowest level since March 17.

 

"It's clear now that markets see higher long-term yields in the U.S. for a
longer period. That's the main driver for the dollar here," said Dane Cekov,
senior FX strategist at Nordea.

 

 

Minneapolis Fed President Neel Kashkari said on Wednesday it is not clear
yet whether the U.S. central bank is finished raising rates amid ample
evidence of ongoing economic strength.

 

Data on Wednesday showed that orders for long-lasting U.S. manufactured
goods rose in August as an increase in machinery and other products offset a
drop in civilian aircraft, and business spending on equipment appeared to
regain momentum after faltering early in the third quarter.

 

YEN ON INTERVENTION WATCH

Elevated U.S. yields have spelt trouble for the yen , which slipped to an
11-month low of 149.71 per dollar.

 

The dollar/yen pair tends to be extremely sensitive to changes in long-term
U.S. Treasury yields, particularly at the 10-year maturity.

 

The yen's decline closer to the psychological level of 150 per dollar has
put traders on high alert for any signs of intervention by Japanese
authorities, as officials ramp up their rhetoric against the sliding
currency.

 

"The fundamental upside pressure (to dollar/yen) from bond yields is simply
too great to ignore," said Alvin Tan, head of Asia FX strategy at RBC
Capital Markets. However, "even if there were intervention, it won't drive
dollar/yen down permanently unless bond yields start to retreat in earnest
too."

 

Minutes of the Bank of Japan's July meeting released on Wednesday showed
that policymakers agreed on the need to maintain ultra-loose monetary
settings but were divided on how soon the central bank could end negative
interest rates.

 

The Swiss franc also reached 0.99240 against the U.S. dollar, the weakest
level since March 22.

 

The Swiss National Bank on Thursday surprised markets by pausing its current
cycle of rate increases, sending the Swiss franc reeling.

 

 

 <mailto:info at bulls.co.zw> 

 

 

 

 

Commodities Markets



 

Gold hastens retreat on higher-for-longer rate bets

Gold extended declines for the third straight session on Wednesday as appeal
for non-yielding bullion took a hit from bets that the Federal Reserve may
keep interest rates elevated, while traders hoped for more cues from U.S.
inflation numbers this week.

 

Spot gold dropped 1.3% to $1,875.79 per ounce. U.S. gold futures fell 1.4%
to $1,893.5.

 

The prospects of higher-for-longer U.S. rates sent investors scurrying to
the safety of the dollar instead, making gold more expensive for overseas
buyers.

 

Further hammering appetite for zero-yield gold, Treasury yields also
remained near 16-year highs. "As long as the narrative remains
higher-for-longer, it's going to continue pressuring precious metals, " said
Ryan McKay, commodity strategist at TD Securities, adding the break below
the $1,900 mark also triggered technical selling.

 

"If the (inflation) data continues to come in stronger, that will be another
thing that continues to weigh on gold."

 

The U.S. personal consumption expenditures (PCE) index, the Fed's preferred
inflation measure, is due on Friday.

 

However, "If the inflation number falls, we could see some support coming to
gold and the expectation of tightening monetary policy could dampen a bit,"
said ANZ analyst Soni Kumari.

 

A "soft landing" for the U.S. economy is more likely than not, Minneapolis
Fed President Neel Kashkari said on Tuesday, but there's also a 40% chance
that the Fed will need to raise rates "meaningfully" to beat inflation.

 

On the flip side, gold continued to find some support from robust physical
demand, especially from central banks and in China, although "the near-term
dynamics are certainly the Fed," TD's McKay said.

 

Silver was 1.5% lower at $22.52 per ounce, having touched a 12-day low,
while platinum fell about 1.9% to $886.44. Palladium was flat at $1,223.57,
on track to snap a four-session losing streak.

 

 

 

 

 

.

 

 


 

INVESTORS DIARY 2023

 


Company

Event

Venue

Date & Time

 

 	

 

 

 

 

 

 	

 

 

 

 

 

 	

 

 

 

 

 

 	

Hippo

AGM

The Country Club, 1 Brompton Road, Newlands

Sept 29 2023 | 9am

 

 	

 

 

 

 

 

 	

Counters trading under cautionary

 

 

 

 	

 

 

 

 

 	

CBZH

GetBucks

EcoCash

 

 	

Padenga

Econet

RTG

 

 	

Fidelity

TSL

FMHL

 

 	

ZBFH

 

 

 

 	

Invest Wisely!

Bulls n Bears 

 

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