Zimbabwe: Investors Now Await Themonetary Policy Statement

Source from:  Financial Gazette (Harare) 12 September 2007 09/14/2007

BULLISH conditions that returned to the equities market following the announcement of an expansionary Supplemen tary Budget by the Minister of Finance, Dr Samuel Mumbengegwi, on September 6 2007 suddenly stopped yesterday as investors took profits ahead of the monetary policy statement expected next week. Having experienced an average growth of 15 percent after the Budget presentation, the Industrial Index retreated by 3.1 percent yesterday to close the day at 65,996,610.02. The Mining Index that had been growing by an average of 23 percent suddenly stagnated as it rose by a marginal 0.49 percent to 53,462,034.46 points. This sudden stoppage by bulls despite the continued existence of negative real interest rates emanating from excess liquidity-propelled low nominal interest rates and the high inflation environment which is now expected to worsen courtesy of the inflationary Z$37.1 trillion Budget is due to investors' desire to know the policies that will be contained in the forthcoming monetary policy statement. Furthermore, investors that got locked in July when the market suddenly crashed following the 50 percent cut in prices, have been longing for an opportunity to take their profits, run away and reconsider their next move while holding their cash. That long sought opportunity only came this week when the Industrial Index surpassed its then record of 53,354,792.46 points set on July 3, 2007. On a weekly basis, however, the stock market experienced a strong growth with the Industrial Index jumping by 47.17 percent from 44,843,969.92 points recorded last Wednesday (05/09/07) while the Mining Index shot up by 92.22 percent during the same period from 27,812,279.91 points. Seventy five counters gained during the week under review compared to sixty four recorded the previous week. Reflecting the strong bullish mood that gripped the equities market, not a single counter fell this week compared to five counters closed in the red last week. Leading the pack of movers was OK Zimbabwe that went up by 536.36 percent to close the week at Z$7 000 after consolidating its shares to the ratio 5 to 1, followed by Pioneer that surged by 500 percent to Z$3 000 from $500 and Steelnet that put up 211.11 percent to Z$2 800. NMBZ Holdings Limited and Zimpapers surged by 200 percent and 185.71 percent, respectively to close at Z$3 000 and Z$2 000, respectively. Buoying the resources index were Falgold and RioZim that firmed by 150 percent and 128.57 percent, respectively to end the week at Z$50 000 and Z$800 000, respectively. Heavy weight counters also marched upwards with Innscor and PPC both gaining by 66.67 percent to close at Z$100 000 and Z$150 000, respectively. Delta rose by 50 percent while Barclays put on 40.63 percent to close at Z$60000 and Z$21000, respectively. Old Mutual rose by 28 percent to close at Z$800 000 whilst Econet and Meikles went up by 26.67 percent apiece to Z$380 000 and Z$300 000, respectively. Meanwhile, the money market opened the week on Monday (10/09/07) in the red to the tune of Z$930 billion due to the liquidity draining effects of Statutory Reserve Payments done every Monday. As a result, there were no bids received in that day's Treasury bill tenders as most financial institutions grappled with the shortage. The tight liquidity conditions were carried over to Tuesday (11/09/07) as the market closed short by Z$1.1 trillion against a forecast position of Z$688 billion due thin inflows from Government expenditures. The closure of the tobacco selling season on September 7 also aggravated the situation as payments for the purchase of the golden leaf by the Central Bank that constituted a significant proportion of liquidity inflows onto the money market suddenly dwindled. Despite the liquidity constraint that faced the money market during the week under review, investment rates continued to be depressed. Most financial institutions were not quoting anything for 7-14 days investments in preparation for the dry patch likely to be experienced next week owing to outflows through Statutory Reserve Payments, VAT Payments and the liquidity sucking Corporate Tax Payments. Investments for 30 to 90 days ranged between 50 percent and 120 percent as market players priced their liabilities based on expected liquidity conditions in the future. The trickling in of civil servant salaries before the end of the week coupled with other Government expenditures especially the purchase of farm equipment may ease the liquidity shortages. Enditem