Local brokerage firm Stockbrokers Botswana has warned that the full recovery of the local export dependent economy will take longer than expected, despite the resumption in diamond production.
In a research note released recently, Stockbrokers Botswana said that going forward; the market consensus is mixed between the optimistic, supporting the view of a ‘V’-shaped.
“We hold the view that locally, recovery will be slow. While diamond production has resumed, revenues still remain well below pre-crisis levels due to low demand for luxury goods. Consumers are now vigilant with their spending patterns and now leaning towards savings”, said the brokerage, headed by stalwart broker Geoffrey Bakwena.
Last week asset manager Bifm said on its quarterly review that as with the international economy, the domestic economy ended 2009 generally in a better shape than it started.
“Diamond production has restarted and has recovered faster than had been initially anticipated”, said the review.
“Inflation has continued to fall steadily. The non-mining sector of the economy has continued to perform well, and has seemingly managed to shrug off the effects of the global crisis and the slowdown in the mining sector,” it added.
However, Stockbrokers Botswana stated that challenging economic conditions are expected to continue to affect forward earnings multiples for most counters.
“Going forward, the market consensus is mixed between the optimistic, supporting the view of a ‘V’-shaped recovery.
This is versus the belief that uncertainties surrounding the medium term look prevail and thus gravitate towards a more cautious ‘U’-shaped recovery”, said the brokerage.
On the investment front, Stockbrokers stated that market sentiments seem to be moving towards the more stable large caps which offer higher dividend yields.
It added that careful stock-picking remains important particularly when it comes to smaller caps which tend to be overlooked in favour of blue chips.
On the money market front, the brokerage said it saw the 14-day paper mirror the direction of the Bank rate, closing the quarter 107 basis points down at 7.10 %. The 3-month paper took the opposite direction, going up marginally to close the year at 8.20 percent.
“Looking ahead, inflation prospects remain positive in the medium-term. A short term spike can be expected in the first half of 2010 due to rising international oil prices which may translate into higher domestic fuel prices”, it said.
“We expect that inflation will stabilise around the BoB’s objective range in the second half of 2010. Upside risks to the inflation outlook comprise a possible increase in administered prices and government levies”.
The descending trend in inflation carried on into the final quarter of 2009 on the back of sustained price stability and lower borrowed inflation from South Africa.
The month of October saw the inflation rate decline by 10 basis points to 6.9 %, just 90 basis points shy from the upper end of the Bank of Botswana’ s medium-term target range of 3-6%.
An even sharper decline of 190 basis points to 5.0% was recorded in November. This was the lowest rate of inflation recorded in Botswana since the mid-1972.
The drop was largely due to lower food prices and a higher base in
November of 2008. Inflation in November 2008 shot up to 15.0 percent as a result of the government-imposed 30.0% alcohol levy and adjusted fuel prices.
Inflation rose again in December 2009 to 5.8 %. This was attributable to the winding down of favourable base effects in fuel prices.