Zimbabwe: Investors Trade Cautiously

Source from:  Financial Gazette (Harare) 7 August 2008 08/11/2008

WITH the talks between the ruling ZANU-PF and the two MDC formations continuing in Pretoria, South Africa, though past their initial deadline of August 4, investors are now staying close to their money. This is because a positive outcome of the talks is expected which may result in the widening of investment options and a depression of profit margins as the economy stabilises. Sensing danger of collapse of their margins, speculators are longing for a day when the outcome of the talks will be announced so as to be able to restructure their asset portfolios in line with the new socio-economic and political dispensation. Furthermore, the reduction in the settlement cycle on the Zimbabwe Stock Exchange from seven to three days has improved the liquidity of shares, a situation that has aided investors to exit the market and stay close to their money. Given that the T+3 cycle has a condition that a buy order can be done once transfers have credited the Broker's account, dealers have experienced a decline in buy orders as investors have been discouraged by delays in the RTGS system. The increase in the maximum daily cash withdrawals by the Central Bank on July 30 2008 by 1900 percent from $10 (revalued) to $200 (revalued) also led investors to slowdown on their demand for shares as they expected the money market to tighten thereby resulting in an increase in investments. Reflecting the above developments, the equities market suffered heavy losses during the week ended Wednesday as sellers descended heavily on the market resulting in both the industrial and mining indices losing ground. The Industrial Index lost 25.63 percent to close at 15,845.39 points while the Mining Index declined by 27.96 percent to close at 17,110.08 points. The highest losses were recorded by ZECO, which lost 86 percent in three trading days to close at $0.10, followed by ZPI, losing 71.43 percent, Fidelity losing 70.59 percent, Star Africa losing 70 percent and Mash Holdings losing 65.71 percent. The market however, recovered on Wednesday (06/08/2008) as some investors took advantage of the weak prices to enter the market with gains of 9.91 percent and 7.06 percent for the industrial and mining indices respectively. Meanwhile, excess liquidity conditions in the money market continues despite the absence of liquidity injections through Treasury bill maturities and high cash withdrawals emanating from the recent increase in daily withdrawal limits. This is mainly due to high liquidity inflows into the market emanating from various fiscal and quasi-fiscal expenditures such as gold and tobacco purchases, the purchase of farm equipment and provision of working capital to farmers through the Agricultural Productivity Enhancement Facility (ASPEF) in addition to funds meant to ensure the provision of basic commodities at affordable, but viable prices through the Basic Commodity Supply-Side Intervention facility (BACOSSI). Reflecting the easier liquidity conditions on the money market, investment rates continued depressed during the week under review with 7-14 day money hovering in the 100 percent to 200 percent range as most financial institutions' appetite for cash was very low while the longer-dated 60 to 90-day paper were quoted in the 250 percent to 300 percent range. We expect the current negative real investment rates on the money market to continue as the authorities are pursuing expansionary fiscal and monetary policies designed to support the productive sectors of the economy especially agriculture. As a result, non interest earning assets such as equities and property should continue to yield returns that match or surpass inflation. Enditem