Tuesday, September 29, 2020

BSE unfazed by bubble burst

The Botswana Stock Exchange (BSE) put on a brave face on Friday to defend the dive that heavyweight counters have been experiencing for quite some time now.

BSE Product Development Manager, Thapelo Tsheole, told The Sunday Standard that the recent downturn in the market is, in essence, a positive development.

Reports indicate that in the past year to April 30, the stock market made a loss of over P10 billion, largely as a result of stock depreciation of financial counters.

“When prices go down as a result of market correction, it is not necessarily a bad thing. Investors have to pay a fair value of the company and not over-valued stocks,” he explained.
He added that the market correction would even enhance the attractiveness of investing in the domestic bourse if the Price-Earning (p/e) Ratio is to reduce as well.

“Now people would tend to buy shares at a reasonable price. Again, the current share price depreciation can also be viewed as an opportunity because those who pick the stocks now are likely to make profit when share price rises,” he explained.
In the month of April alone, it is said that the bourse shed about P1.6 billion.

Tsheole said there is no reason to press panic buttons in the midst of the bubble burst, saying losses in capital appreciation are not the only determinants of monetary value that can be yielded from investing in the stock market.

“There are also dividends to be enjoyed. The expectation now is that dividends would remain moderately the same,” he said.
However, Tsheole emphasized the need to understanding investing in the stocks.

“It is very important for people to understand and get used to the idea that, by nature, share price fluctuates. Sometimes prices go up and at others they go down, that is very important to know,” he
emphasized.

The past few years have seen the BSE being in a see-saw performance, largely driven by financial companies.

Large capitalized firms yielded a weighted average return of 67.1 percent in 2006 and pushed market index returns (of the Domestic Company Index) to 74 percent. The following year, heavyweight counters performance was bearish at 34.8 percent and that saw the DCI following suit, softening to 35.9 percent.

The DCI saw a bullish rally from December 31, 2006 to July 31, 2007 ÔÇô picking from 6195.4 points to an all time high of 9879.4 points. That was a marked 59 percent improvement. The story has since changed, the DCI is at a 14 month low and had recorded about 22 percent fall from December 31, 2007 to the past Thursday.

“But prices are now beginning to stabilize,” claimed Tsheole.

However, Capital Securities’ Head of Client Services, Leutlwetse Tumelo, has a different view point. In his company’s latest report, he warns of no significant improvement for some months to come.

“There is some activity, but I am not seeing buyers yet,” he argues. “The good underlying bank results for 2007 should have given us a boost, but bank stocks are still being sold off. More good results at half year might start to excite the market, say in about three months, but I doubt anything will happen sooner, the market still needs to breathe. The unfortunate situation is that people will continue to sell down until the big buyers see opportunities,” says the analyst.

The downturn is attributed to a number of factors; amongst others, the rush to pick stock in financial companies which resulted in their share price appreciating disproportionately. That even saw the banks’ stocks under-going a surgery last year of share split. The market correction coincided with heavy losses due to impairment as a result of the Lobtrans scandal and negative publicity that surrounded that issue.

BIHL also had a fair share of negative publicity due to share acquisition by select management and non-executive and executive directors.

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The Telegraph September 30

Digital edition of The Telegraph, September 30, 2020.