The market is expected to continue its bearish mood in 2009 building on the loses it made last year as panicky investors sold-off to runaway from global credit crunch.
This week, Martinus Seboni, the Managing Director of Investec Botswana, said after the correction the domestic stocks will most likely struggle for direction to start the year as investors assess fundamentals.
“Local equity market is overwhelmingly bearish,” he said.
Last year, the DCI returned a negative 17 percent after 19 years of positive returns, although the correction was expected after the good market run of 2006.
“Normally the bear market has a long duration and steep”, he added.
Addressing clients at the GICC on Wednesday night, Seboni said his pick for the year is property stocks as the probably most favoured sector with property net yields of about 7 percent looking attractive, compared with 4 percent for general equities.
But it will come with risk of increasing defaults. Already, Seboni sees financials that include banks likely to struggle at the back of slowing demand for credit and deteriorating credit quality brought on by rising unemployment and slowing economic activity.
Already blue chips like Debswana have shut down key operations while other big employers like BCL have retrenched over 300 workers.
The developments will also have an impact on the purchasing power with retailers expected to struggle.
Seboni said of the consumer stocks: “Consumer stocks (will be) under pressure as consumers progressively become more guarded with their spending activity. Benefits of lower oil prices and interest rates are likely to be eroded by rapidly rising job losses and pressure to reduce debt.”
This is expected to hurt stocks like Sechaba which is likely to under perform because of the 30% alcohol levy.
The Investec Managing Director says mining stocks especially the base metals are the biggest ‘trouble spot’ this year saying sharp slowdown in demand exacerbated by destocking continues to weigh on sentiment.
“Supply problems still exist, but market only focused on demand slow down. (We) expect some junior miners will be placed under care and maintenance or even go bust where higher cost operations remain unfunded through this period of lower metals prices”, he observed.
He advised that the strategy for juniors will be to conserve cash, redeploy resources or simply wait out the current economic downturn as metals and stock prices collapse.
He added that the strength of the commodity price recovery will depend on two things ÔÇôthe strength of the consumption rebound, and supplier response.