Is It Time to Buy Zimbabwean Stocks?

After 37 years that saw the southern African nation deteriorate from one of the continent’s most prosperous to one of its most destitute, President Robert Mugabe has resigned from office. The dramatic turn of events has understandably raised hopes of much-needed political and economic reforms. And many investors are now keen to get a handle on the local stock market. Here are a few things to consider if you are of similar mind.

It’s been a remarkable month in Zimbabwe.

After 37 years that saw the southern African nation deteriorate from one of the continent’s most prosperous to one of its most destitute, President Robert Mugabe resigned from office on November 21 following a military takeover precipitated by his sacking of Vice President Emmerson Mnangagwa.

The dramatic turn of events has understandably raised hopes of much-needed political and economic reforms. And I’m already getting questions from readers who are keen to figure out how best to invest in the country.

So, is it time to buy Zimbabwean stocks?

In my view, the answer is no. But it’s most certainly time to familiarize yourself with the market.

Here’s why investors should stay on the sidelines for now.

  • The new administration is not certain to implement needed political and economic reforms.
  • After a huge run-up this year, the Zimbabwe Stock Exchange (ZSE) isn’t exactly cheap.

Risky Business

True, it’s hard to imagine that Zimbabweans will be any worse off after Mugabe’s departure. The past two decades have been nothing short of ruinous.

But it’s important to remember that Mnangagwa, his likely successor, has a deeply checkered past. Thousands of civilians were massacred in Matebeleland during his tenure as security minister in the 1980s. He was also implicated in the invasions of white-owned farms and in the brutal crackdown on supporters of the Movement for Democratic Change (MDC).

Time to invest in Zimbabwe?
Photo by: Alan via Flickr

Even if Mnangagwa, while not a saint, proves to be a pragmatist and steers Zimbabwe toward economic recovery, Zimbabwean stocks are still tremendously overpriced.

The ZSE’s main index has posted a 128% gain since the start of this year. But the surge isn’t a result of improved earnings or a newly bullish outlook. Quite the contrary. With dollars increasingly scarce, local investors were worried about the potential for a return to the bad old days of hyperinflation and raced to invest in stocks as a way to protect the value of their savings.

When the military took over the government on November 14, inflation fears began to subside. And stock prices plunged. The ZSE’s Industrial Index has plummeted 38% since that date. And, as I write, it remains in near free-fall. Yet the market’s average price-to-earnings ratio remains at an exceedingly high 30.0. Thus, the prudent course is to wait for the market to find a floor.

This could take a matter of days, weeks, or months. It’s impossible to say with certainty.

What to Watch For

There are two things that would indicate that Zimbabwe’s stock valuations are migrating from highly speculative to long-term value territory:

  • The ZSE Industrial Index falling from its current level of 329.6 to somewhere in the low 200s (ideally lower); and
  • An official announcement that elections will proceed next year as scheduled. If this doesn’t happen, the new administration’s legitimacy will remain in question, as will its capacity to put the country on the track to economic recovery.

Three Stocks for Your Watchlist

If both of the above conditions are met, I believe there are a few companies that stand a good chance of yielding market-beating returns over the long-term.

Axia Corporation
(Current Price: $0.20; P/E Ratio: 14.3; Dividend Yield: 2.5%)
Axia operates Zimbabwe’s popular TV Sales & Home stores, which sell a wide range of furniture, electronics, and appliances. It also runs a trucking and warehousing business, and Transerv, which distributes spare auto parts.

The company’s earnings have been remarkably resilient in recent years thanks to inflation-wary consumers spending cash on tangible goods. The business will likely find it easier to import inventory in a post-Mugabe Zimbabwe.

OK Zimbabwe
(Current Price: $0.20; P/E Ratio: 27.0; Dividend Yield: 2.3%)
OK Zimbabwe operates one of the nation’s largest grocery chains. Similar to Axia, it should find it much easier to restock its warehouses with imported goods under the new regime and should also benefit from what is forecast to be a good agricultural harvest this year, which should put a bit more spending money in consumers’ pockets.

Econet Wireless
(Current Price: $0.86; P/E Ratio: 23.2; Dividend Yield: 1.7%)
Zimbabwe’s dominant telecommunications provider, Econet boasts a 49.4% share of the nation’s mobile telephone market. Similar to Kenya’s Safaricom, it is a pioneer in the field mobile payments and insurance. Mugabe’s departure raises the prospect of increased availability of foreign exchange, which should allow companies like Econet to more rapidly expand and enhance their services.

How to Invest in Zimbabwe

If you don’t already have a stockbroker in Zimbabwe, the good folks at IH Securities will be happy to help you open a trading account and to register with the Central Securities Depository.

You might also find the following article helpful:

How to Invest on the Zimbabwe Stock Exchange

Your Turn

Do you think Zimbabwean stocks are a bargain in these early post-Mugabe days? Let’s hear your thoughts in the comments.


How to Invest in Kenya’s M-Akiba Bond

Here are last-minute instructions for how to invest in Kenya’s M-Akiba bond.

[UPDATE: Due to an impressive response from investors, the initial offer for the M-Akiba Bond closed five days earlier than scheduled. But don’t worry. The bond will soon be available for purchase on the secondary market. Stay tuned here for instructions on how to do so.]
Have you invested in the government of Kenya’s M-Akiba Bond?

If not, you likely have just a few more hours to participate in the initial offer. The mobile-only infrastructure bond has proven fantastically popular.

If you’re a Kenyan citizen and at least 18-years-old, it’s worth taking a look.

The minimum investment is just KES3,000 and it pays tax-exempt interest at a rate of 10% annually. And because the bond can be bought and sold on the secondary market, it makes a nice option to stash an emergency fund.

Photo by Erik Hersman
Photo by Erik Hersman

Sound interesting? If so, here are some last-minute instructions for how to invest.

How to Invest in M-Akiba

  1. Load your mobile money account with at least KES3,000 plus an amount sufficient to cover transaction charges.
  2. Dial *889#
  3. Set your personal identification number (PIN) and then click “OK.”
  4. Enter your national ID number.
  5. At the following prompt, dial “1.”
  6. Read the terms and conditions and, if you find them acceptable, dial “1” to proceed.
  7. Wait for a confirmation message, which will include your new M-Akiba account number.
  8. After receiving the confirmation message, dial *889# again.
  9. Enter your PIN.
  10. Select “1.”
  11. On the following screen select “1” to buy the M-Akiba bond.
  12. Enter the amount that you would like to invest.
  13. Confirm your investment amount.
  14. Press “9” to return to the main menu and await a confirmation message that you have been allocated the bond.

Your Turn

Were these instructions clear? Do you have questions about M-Akiba or the process for investing? Let’s hear them in the comments!

Good luck and check back here soon for more info on how to buy M-Akiba on the secondary market.

Other Articles You May Find Useful

How to Begin Investing on the Nairobi Securities Exchange
10 Effective Ways to Pick Better Stocks


An Introduction to Ghana’s Treasury Market

Levar Hewlett, founder and CEO of Arrancar Investments, gives us a few pointers on how to invest in Ghanaian t-bills, notes, and bonds.

Levar Hewlett, the founder and CEO of Arrancar Investments, has a wealth of experience in asset management, commercial credit, and corporate trade credit insurance. Africa’s debt capital markets are his current area of focus.

Here, he answers some of my questions on ways to invest in Ghanaian government securities.

Levar Hewlett
Levar Hewlett, Founder, Arrancar Investments

Ryan Hoover: What are Ghana’s most accessible and attractive fixed income investments?

Levar Hewlett: The most accessible would be government treasuries, which Ghanaian citizens can purchase for as little as GHS100.00 (roughly $21.00) and currently offer yields ranging from 16.1% for a 91-day treasury bill to 21.0% for a two-year fixed note.

Unfortunately, foreigners are not legally allowed to purchase Ghanaian treasury bills on auction. They are restricted to treasuries with maturities of two years or longer, and must purchase a minimum of GHS100,000 (roughly $21,000.00). But they are permitted to buy them on the secondary market, which is reasonably active.

Ryan: How does one go about purchasing Ghanaian treasuries?

Levar: Purchasing treasuries on the primary and secondary market is done through a licensed Ghanaian broker such as IC Securities, Databank, or SAS Ghana.

But local and foreign investors can also get exposure to these instruments through a number of local funds.

  • Databank’s MFund is probably the easiest way for retail investors to invest in Ghanaian government securities. It’s a money market fund with a very low minimum invest amount – GHS50.00 – and it currently offers a yield exceeding 19.0%.
  • First Fund is an open-ended money market fund which invests in money-market instruments, including Bank of Ghana treasury bills and bonds, high-quality corporate bonds, commercial papers and certificates of deposits.
  • HFC Future Plan Trust is a collective investment scheme whose main objective is to invest mobilized funds in short-term money market securities. It invests in bonds, debentures, fixed deposits, treasury instruments and commercial paper. The fund is open to all individuals and institutions who can afford the required minimum contributions. Parents can also invest in trust for their children and dependents.

Ryan: How do the yields on Ghanaian treasuries compare to the interest rates on savings products at local banks?

Levar: Yields on t-bills, notes, and bonds are considerably more attractive than interest rates on savings accounts. As of September 2016, interest rates on local savings accounts ranged from 1% to 12%, which was much lower than the 17.2% rate of inflation at the time. Meanwhile, the yields on treasuries were 22% to 24.75%, which gave investors an ample premium to cover inflation and currency risk.

Yields on treasuries have dropped sharply since September, but inflation has, too. It’s currently 13.3%. So, there remains the potential for a positive real return on investment compared to the negative real return on savings accounts, whose nominal interest rates have quite a rigid ceiling.

Ryan: The high rate of inflation suggests that there may be significant currency depreciation over the next year or two. Do you have any tips for investors on how to evaluate whether Ghanaian treasuries are worth the currency risk?

Levar: There are two key drivers of Ghana’s inflation. There are demand pressures, which are driven by high fiscal deficit financing and exchange rate pass-through. And there are cost pressures, which are driven by hikes in utility tariffs, ex-pump prices of petroleum products, and low productivity in the real sector of the economy.

In the last 12 to 24 months, Ghana’s inflation has been largely driven by cost-side pressures rather than forex pressures as the Central Bank already maintains a tight monetary stance to contain the forex and demand-side pressures. At the moment, the monetary policy rate stands at 26%. Following a sharp depreciation of the Ghanaian cedi against the US dollar in 2014 ( about 32%), the monetary tightening cycle embarked upon between 2015 and 2016 has ensured a slower rate of depreciation by 15.6% and 9.6% respectively.

Cost-push pressures have, however, elevated inflationary pressures since 2015, as the 59% and 67% hike in electricity and water tariffs in December 2015 heightened inflationary expectations. The tax measures implemented in 2016, higher prices of petroleum products, and a 15% upward adjustment in public transport fares in the first quarter of 2016 added further momentum to inflationary pressures. As a result, inflation surged to a peak of 19.2% before retreating gradually toward the end of 2016 to a level of 15.4% in December 2016 as these cost-side pressures eased.

If you take a five-year average of annual depreciation of the cedi versus the dollar, you obtain a 17.3% average depreciation rate. Therefore, for a non-resident investor to bypass forex risks on Ghanaian bonds, the acceptable coupon rate for medium term debts must not be below 17%.

Levar Hewlett has provided financial oversight helping to ensure the long-term viability of multi-million dollar portfolios. In 2017, he founded Arrancar Investments, an investment company focusing on asset management of individuals and real estate opportunities. Levar holds a master’s degree in Finance and an Investment Certificate from Johns Hopkins University, Carey Business School (JHUCBS) and is currently pursuing another master’s degree in Real Estate and Infrastructure at JHUCBS. In his spare time, Levar enjoys spending time with family and friends, traveling, and playing competitive lacrosse. You can contact him at: Levhewlett@gmail.com.

Related Reading

How to Invest on the Ghana Stock Exchange

Here’s the Biggest Threat to Your Kenyan Stock Portfolio

Brokerage commissions and fees are brutal on the Nairobi Securities Exchange. Here’s how much they impact your return and what you can do to beat them.

Frequent trading is the biggest threat to Kenyan stock performance
Photo by Mike Cilliers

Brokerage commissions and fees on the Nairobi Securities Exchange are brutal.

Every time you buy or sell a Kenyan stock, no matter your broker, you will be charged a fee equivalent to 2.1% of the trade’s total value.

Of this total fee, 1.76% of the trade value goes to your broker and 0.34% goes toward taxes and statutory fees.

[Note: If the trade value is greater than Ksh 100,000, the commission rate is 1.85% and can be negotiated lower on very large deals.]

This means frequent trading will decimate your portfolio performance. You must be a patient investor to have any chance of pocketing a positive return.

How Brokerage Fees Eat Stock Profits

Let’s walk through a quick example.

Assume you bought 1000 shares of SmileSave Supermarkets at a price of Kshs 10.00 per share.

The total cost of the trade would look like this.

Kshs 10.00 x 1000 shares = Kshs 10,000

Kshs 10,000 x 2.1% commission = Kshs 210

So, you spent Kshs 210 to buy Kshs 10,000 worth of shares.

Over the next three months, the stock performs pretty well, rising 4.0%. The value of your SmileSave shares is now Kshs 10,400.

Kshs 10.40 x 1000 shares = Kshs 10,400

A 4% return in three months is a very good return. But think carefully before deciding to cash in. Why? Because you’ll be charged a 2.1% commission when you sell, too.

Here’s how that would look:

Kshs 10,400 x 2.1% = Kshs 218

So, even though the value of your shares increased 4% in three months, you actually ended up Kshs 28 poorer than when you started.

Kshs 10,400 – Kshs 210 – Kshs 218 = Kshs 9,972

In order to break even on a trade with a 2.1% commission on purchases and sales, the value of your shares must increase by at least 4.3%.

That’s a formidable hurdle.

Don’t Forget the Opportunity Cost

This hurdle gets even higher when you consider that you could just put your money in a savings account at the bank and, thanks to the new interest rate rules, get at least a 4% annual return.

Therefore, if you bought a stock on the first day of the year, and sold it on the last day, the share price would need to rise at least 8.3% just to match the 4% return you could get at the bank.

To help put that in perspective, only three Kenyan stocks have appreciated by more than 8.3% in 2016.

Time Is On a Patient Investor’s Side

So, with this in mind, how do you get the numbers to work in your favor? Trade infrequently. Buy shares of a solid business that you understand well and hold onto them until you need the cash or until they appear significantly overvalued.

After all, the whole purpose of investing is to build your wealth… not your broker’s.

Other Articles You May Find Useful

How to Begin Investing on the Nairobi Securities Exchange
10 Effective Ways to Pick Better Stocks

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10 Effective Ways to Pick Better Stocks

How do you pick stocks that are likely to beat the market? When it comes right down to it, the answer is simple. Invest only in stocks that treat you well and let you sleep peacefully at night.

Here are 10 specific tactics that help you identify businesses that satisfy both criteria.

How to Pick Good Stocks
Photo by Ken Teegardin

How do you pick stocks that are likely to beat the market?

When it comes right down to it, the answer is simple.

Invest only in stocks that treat you well and let you sleep peacefully at night.

And just how do you do that?

Well, the answer varies a bit from person to person, but here are 10 specific tactics that help you identify businesses that satisfy both criteria.

1. Avoid complicated companies

Stick to companies that you understand. Even better, buy only companies whose products you use regularly.

Shoprite, for example, has a straightforward business model. It sells groceries through a large network of supermarkets. Kenya’s Safaricom sells wireless phone service and operates a popular mobile payment platform, M-pesa. Dangote Cement, makes … you guessed it … cement.

Understanding a company’s business model and products gives you a clearer view of what factors contribute to its success.

2. Don’t stray from established businesses

It can be tempting to buy that fast-growing community bank or to participate in that hot IPO that’s all over the news. Resist the urge.

Investing in unproven companies can yield out-sized returns, but they often also come with a high risk of catastrophic loss.

Focus instead on companies that are known quantities, that have proven they can prosper through good economic times and bad. They may not make for scintillating conversation material at parties, but they stand a better chance of building your wealth over time.

3. Sniff for scandal

Have company executives been charged with paying bribes? Has a parent company been caught running a Ponzi scheme? Does it dump toxic sludge into waterways?

Malpractice like this is insidious, and it can take years for a company to live it down. Distrust of such companies will weigh on their share prices like a ton of bricks. There are better places to put your hard-earned money to work. You don’t need to be associated with businesses like these.

4. Revenue growth is crucial

If a company isn’t selling an increasing amount of stuff to an increasing amount of people, there’s trouble on the horizon. A company can boost earnings for a year or two by cutting costs and becoming more efficient, but if sales are stagnant, profits will eventually stagnate, too.

Look for companies with long-term revenue growth rates that exceed your local rate of inflation. That’s 7% in Kenya, 18% in Nigeria, and 6% in South Africa.

5. Insist on profitability

Take a look at a company’s profit history. Has it reported negative earnings at any point in the past five years? If so, do not buy the stock unless you thoroughly understand the reason for the loss.

Everybody loves a good redemption story, but turnarounds and cyclical stocks are tough to analyze. Stick with a business that earns money year after year, and sleep better at night.

6. Look for consistent dividends

Good companies rarely reduce their dividend, and great companies boost them every year. When you buy a stock, you become a part owner of that company. As an owner, a mature, healthy company should be able to pay you a portion of its earnings in the form of a dividend every year.

If the amount of this dividend is cut, or remains stagnant for several years, there better be a very good explanation for it. If there isn’t, there are plenty of other, more profitable places to invest your money.

7. Watch out for debt

Companies with heavy debt loads suffer disproportionately during tough economic times and have fewer resources available to them when expansion opportunities arise. What’s more, they also have less flexibility to issue dividends or buy back shares.

KenolKobil is one formerly debt-strapped company that got serious about paying off its loans in 2013. The stock’s stellar performance since then speaks for itself.

8. Shun high P/E ratios

The price-to-earnings ratio is a blunt instrument, but like a hammer, it’s nevertheless one of the most valuable metrics in your analytical toolbox.

As a general rule, stocks that are priced at a low multiple to their most recent twelve months of earnings (below 15x), will outperform stocks with high P/E ratios. The market expects stocks with high P/E ratios to grow their earnings at high rates. And high expectations often end in disappointment.

9. Take CEO share purchases seriously

Who knows more about a business than its CEO? Pretty much, nobody. So, if you see a CEO buying a large amount of shares of her own company, you can be pretty confident that good things are in store for the stock. Calgro M3’s Wikus Lategan and James Mworia at Centum are two CEOs who’ve recently made big purchases of their own shares.

10. Beware rising share counts

When a company increases its number of shares outstanding, it’s rarely good news for shareholders.

Issuing share options to employees dilutes existing shareholders’ stake in the business. Acquisitions funded by the issuance of shares dilute shareholder value and expose the company to the risk of a new venture. Rights offers dilute shareholders who don’t have additional cash to invest in the business, and indicate that the company that may be over-leveraged. And bonus share issues are essentially an attempt to weasel out of paying a dividend.

Favor companies whose total share count remains level, or, even better, reduces from year to year.

So, there you have it. The stock market offers no guarantees, but if you can identify a company that passes this checklist with flying colors, there’s a good chance you’re looking at a long-term market-beater.

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