Global Economy
Global growth is forecast to slow from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023 owing to a number of challenges, including policy tightening, inflation, and Russia’s invasion of Ukraine. Global inflation is forecast to reach 8.9% in 2022 and then fall to 6.2% in 2023 versus a target of 2%. Economic growth for Sub Saharan Africa for 2022 is expected to slow to 3.4% with expectation of modest growth in 2023 and a gradual clawback of contribution to share of world GDP towards 2016 levels. In general, commodity prices are forecast to register a modest decline owing to tight monetary policies adopted globally following a surge in global inflation.
Zimbabwe Economy
2022 GDP for the country is expected to increase by 4% driven by mining, agriculture and construction industries. Mining is expected to grow by 10% in 2022 driven by expected increased output in gold, platinum group metals, chrome, nickel, diamond and coal. Aiding to this growth are above average international commodity prices and increased investments in the sector. Construction industry is expected to improve by 10.5% in 2022 while growth in the energy sector is estimated at 14.3%. GDP for the year 2023 is expected to increase by 3.8% underpinned by favourable international commodity prices, normal to above normal rainfall, and continued use of the multi-currency. However achieving this growth is going to be an uphill battle given the country is currently facing power shortages, inflation and depreciating local currency. Another downside risk will emanate from elections which will take place in 2023. The country faces risk from likely increased spending to finance election-related activities ahead of and during forthcoming polls.
Zimbabwe Equities
The ZSE market cap currently stands at ZWL$2.29tn (circa US$2.26bn at the alternative rate), a discount of 39% to the historical average of US$3.70bn, suggesting buying opportunities on the bourse. While fundamentals speak to a bullish stock market in 2023, in 2022 we observed a dislocation between fundamentals and the ZSE stock market performance. Tight monetary policy changes coupled with regulation of the bourse resulted in the exchange registering -59% real returns in 2022 (smoothened for Simbisa and National Foods). The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued. Based on counters under IH universe, median dividend yield currently stands at 2.6%. Presenting higher dividend yields is Axia (7.5%), Delta (5.4%), and National Foods (4.0%). In the case of economic turbulence, consumer staples exhibit the most resilience to tough operating environments. Consumer facing stocks are currently trading an average P/E (+1) of 5.62x versus regional peers at 16.50x and EV/EBITDA (+1) of 4.12x versus regional peers at 10.23x suggesting buy opportunities. Mining companies also present buying opportunities trading at average P/E (+1) of 4.25x versus historical average of 13.13x and EV/EBITDA (+1) of 4.72x against historical average of 4.72x. On the VFEX, we have been observing capital appreciation of counters migrating from the ZSE due to exchange rate disparities. We are of the view this prevailing situation will be sustained at least in the short-term presenting an opportunity to register gains for companies moving from the ZSE onto the VFEX. Amidst economic uncertainty in the wake of an election, the Karo bond which is offering a coupon rate of 9.5% seems to be a good investment, also offering another asset class for diversification.
