The Botswana Stock Exchange (BSE) beginning of this week has found a decline of three stocks, market experts see this as one of the signs that COVID-19 has now shown symptoms of infection on the local bourse.
There could be an out of sight meaning of why COVID-19 comes to this country in trinity. Just like BSE recording a decline of three stocks due to the coronavirus associated impact on local market, Botswana discovered first three cases of the pandemic, causing the nation to go on standstill.
Market observation suggest that the three stocks which fell in the beginning could be investors’ response to the State of Emergency which was announced last week to effect on the dead of Thursday night. Just by Friday last week Stockbrokers Botswana produced a gloomy account of the Domestic Company Index (DCI) failing by 0.15 percent with all prices changes for the week being negative.
Experts believe investors kept their money safe in Botswana as the country was still ‘safe’ for COVID-19 before three first cases were announced and a declaration of State of Emergency or lockdown could have caused foreign investors to sell and run.
“The market has its ups and downs-unfortunately we have entered a down cycle, and at the moment we are seeing international investors selling out,” said a market research analyst. In its market summary released early in the week Motswedi Securities red flagged that, “the COVID-19 pandemic, is making its mark known on the local equity market.”
According to the stockbroker’s research on Monday the volumes traded in the session amounted to 4.6 million shares, of which changed ownership across 12 stocks, with a total market value of P14.99mn.
According to BSE Market Status for the period 1 January to 31 March 2020, The DCI experienced a “slight depreciation” of 0.09 percent in the period under review (from January to March) in comparison to a 0.43 percent increase registered in the same period in 2019. Another depreciation was registered on the foreign companies’ front as FCI recorded a depreciation of 0.71 percent in quarter 1 of 2020 relative to a decrease of 0.26 percent over the same period in 2019.
The falling in numbers in the local bourse can be attributed to investors’ reaction to last week first cases of coronavirus and the subsequent declaration of State of Emergency.
This is because BSE Market Status report of January to 18 March, before COVID-19 was discovered in the local shores, showed the local managed to be the fourth liquid stock exchange in Africa out of 27 bourses, holding onto its 2020 gains while the pandemic made its presence felt on other indexes who fell on the negative bear status.
The local bourse made headlines as it got up 1.5 percent this week against others. But the latest BSE report in which it exchange was holding a comparative with other indices which it acknowledged were impacted by “the volatility stemming from the COVID-19 pandemic,” the local stock exchange showed to also be growing fur and claws like its counterparts.
According to the report, the DCI’s US Dollar return over the quarter of 2020 amounted to a negative 11 percent on the back of the Pula depreciation of 12 percent against the dollar. The Johannesburg Stock Exchange ALSI also experienced massive losses with a depreciation of 39.5 percent over the quarter while the Stock Exchange of Mauritius (SEMDEX) lost 33.3 percent in US Dollar terms.
BSE turning from being stable to gradually growing fur and claws
However Motswedi Securities said the more liquid stocks, that is, those are deemed to be popular, have taken a turn for the bears in the market. If Botswana had not recorded any case of COVID-19, it took a long time to announce first cases, investors could have developed interest in BSE and made it a bull market, according to observations.
The local bourse is said to be illiquid, but was at least stable as its counterparts in African markets plunged in negatives. This week BSE is seen developing more fur and long claws, a metaphor for a stock market taking a turn for the bears in the market, declining or becoming a bear market.
On Monday companies in the DCI who pulled BSE down onto the bear market status are the once best performers like First National Bank Botswana(FNBB) which dropped 5 thebe to close to close at the price of P2.70/share, extending the stock’s yearly loss to -5.3 percent, according to Motswedi.
Another loser was Chobe which lost the largest in value by far in the day, to close at P11.00/share. “This 4.3 percent depreciation in the share price of the company was somewhat expected, given that the impact of Covid-19 is really being felt in the tourism and hospitality sector, as local borders have been closed off to international visitors and various lockdowns implemented across the world,” said Motswedi Securities.
Another bank which joined FNBB in the line of losers is BancABC which recorded decline in profit in its last week released financial results. According to Motswedi market research, BancABC, fell to its IPO price of P2.00/share, in its first movement of the year and this unfortunately resulted in the stock’s year to date ending the session at -1.0 percent.
An observer said banks including FNBB and BancABC are starting to feel the heat amid COVID-19 because of impairments and loan defaults now weighing heavily on them as lending is their main source of revenue, hence investor scare.
Many fear to buy shares now because the feel like BSE is now on decline like the rest and fear buying a bear market. But some believe buying stock can come with a good gamble and opportunities. One said it should be time to buy stock because it will give an investors the opportunity to negotiate a favourable price for themselves in future. “An example would be buying Chobe stock that traded 50 thebe below the opening price on Monday,” said one market analyst.
Motswedi Securities chief researcher Garry Juma said: “It depends with one’s risk appetite and the tenor of investment. If one is in for the long term, this is the time to buy some of those hard stocks to find, like Chobe which are now available and at a lower price.”
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”