Implication of lock-downs on the Stock Market


Globally, hospitals are buckling under a torrent of Covid-19 patients. It appears that vaccines are the only way out of this as they can reduce deaths by (i) protecting the vaccinated directly by stopping them from becoming ill and (ii) offering indirect protection to the unvaccinated. Following a surge in Covid-19 cases, Zimbabwe has moved to level 4 national lockdown measures which include, amongst other things reduced working hours for commerce and industry (0800hrs to 1500hrs) and a general curfew from 1830hrs to 0600hrs. Travellers from countries with Alpha and Delta Covid-19 variants (UK and India) will be quarantined and subjected to four tests at their own expense.

Our focus as investment practitioners has been on assessing the impact of the new measures on stock market performance. Of course, anyone who invests in equities has at one time or another fancied they can sell at the top and buy again at the bottom, thus enjoying the return from stocks while avoiding the risks. That said, it becomes critical to gauge market sentiment following the announcements. In behavioural finance, investors are guided by psychology more than by rationality and efficiency. Findings of behavioural finance also indicate that investors overreact to some events and underreact to others. As a result, we undertook a survey through our online network of ZSE traders and investors using piggybankadvisor.com WhatsApp and Telegram groups. This was done by posing the question; Implications on the Stock Market? Discuss.

The following are some of the responses obtained from the various participants;

  • “Shorter business hours have a negative impact on sales. Hotel and Tourism sector recovery will be delayed. In the immediate aftermath, ZSE might slightly turn soft due to sentiment, though losses might not be huge. However, with OK and Delta dividends being paid tomorrow and Friday which are close to ZWL 2.0 billion combined, some of it, if not most will find way to the stock market. Plus, other dividends coming (Hippo and TSL), there is likely going to be some appetite. So, from next week, the market might hold”
  • “Stocks that are still heavily reliant on being open for long such as retailers (from food and clothes) may take a dig. However, not too sure if 2 weeks may be enough to cause a significant movement. It may also be interesting to compare with January when the last heavy lockdown was set to see the movement the market took”
  • “My take is that uncertainty has returned and some stocks will take a dive whilst food and medicines portfolios may look up.  However, the ZSE will likely remain looking upwards. The tourism portfolios will be interesting to look at”
  • “Two weeks is too short to change anything on terms of impact. In any case, the ZSE will keep rallying somewhat at a slower pace than before”
  • “Generally, lockdown means that there is a higher demand for basic commodities such as food and data. You find that certain prices will fall and others will increase. For example, Econet’s share price will increase because there is demand for data. Share prices for companies such as Innscor and OK might appreciate. Innscor has dial a delivery. With OK, you can now shop online”
  • “Lockdown means less consumption and more savings for those with regular pay checks so more money will flow to the ZSE. Investors will continue with their bull run as the lockdown is partial – markets and businesses will remain open”
  • “During the last lockdown in 2020 (March-August), there was a great rise in stocks so much so the government had to close the market. The market only came tumbling down when it was reopened but has since picked up since then. Also, we must look at this from an institutional perspective. What do the big dogs in the market think? Would pulling money out of the market be a viable option for them?”
  • “It may affect some counters performance to negative levels to a lesser extent because most of the industry and commerce have already adjusted to these lockdowns previously. Some counters will benefit from these restrictions. I think we are most likely to see a bear run or some form of stability”

Based on our findings, market participants appear to concur that both losers and winners will emerge. There is also consensus that recovery in the tourism sector will be slow. An analysis of the ZSE Indices, clearly indicates that small caps have outperformed on a YTD basis with a movement of 1,478%.

ZSE Indices – YTD Movements

More recently, we have also witnessed several positive economic news flows with the Government of Zimbabwe revising the 2021 economic growth forecast from 7.4% to 7.8% driven by the agricultural sector which has grown by 34%.  The IMF is projecting a 6% growth rate for the economy. In addition, the vaccination programme in Zimbabwe appears to be aggressive when compared to other countries in the region. In our view, there are some economic sectors that are set to remain resilient even in the face of lockdown measures. Another positive is that remittance volumes in the five months to May 2021 increased by 82% from USD289 million in 2020 to USD527 million. This should help support the positive momentum on the equities market. As outlined in the Morgan & Co Research 2021 Economic Outlook Report, companies that focus on luxury or non-essential goods will be the victims. Tourism and hospitality will likely remain in the doldrums while consumer-facing companies offering defensive and mass-market oriented goods could be able to surf the tide. Investors on our market should seek exposure in companies that have defensive business models. Some of our top picks include Innscor Africa, Delta, National Foods, Dairibord Holdings and Simbisa Brands.

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