Zimbabwe: Equities Gain Amid Worsening Inflation

Source from:  The Herald (Harare) 25 August 2008 08/28/2008

EQUITIES gained throughout the week last week amid worsening inflation data, and generally rising positive sentiment towards the share market. At close Thursday, the main index rallied 33,1 percent or 14 985.91 points to fresh record highs at 60 311.89 points after July annual inflation rocketed to 11,2 million percent. The Central Statistical Office also reported in the review week that month-on-month inflation gained to 839,3 percent from 433,4 percent a month earlier. Food inflation rose faster than non-food inflation. Thursday, the resource index leapt 49,2 percent to 70 764.42 points, erasing losses of 1,1 percent reported a day earlier. All mining counters gained Halogen. In Friday morning trade most stocks gained with early rally reported in tobacco processor BAT that doubled its price to $300. Retailers OK and Redstar rose by more than 54 percent each while Colcom and General Beltings increased by 60 percent apiece. Only four counters traded in the red early Friday. Fractional losses were posted in banking groups CBZ and Barclays that dragged 25 percent and 7 percent respectively. Zeco and Nicoz Diamond eased 2 percent and 1 percent in that order cooling off the rapid increases reported in the previous two days of trade. Overall, the market looked geared towards further bullish trading on the day, particularly in the absence of strong economic data that can encourage investment in other markets outside the Zimbabwe Stock Exchange. On Monday, the main index gained 8,3 percent but shot 19 percent on Tuesday on increased buying. It rose 16 percent at midweek. the mining index grew 28,8 percent on Tuesday but gained a fractional 3,5 percent at week opening. In the review week, there was increased buying pressure in second liner and other penny shares whose prices had appeared under-valued in the previous trading periods. Investors are concentrating capital in equities and on foreign currency, as hedges against inflation. Growth on the two investment fronts has been phenomenal this year. Since January, the Old Mutual Implied Rate, the broadest measure of the foreign rate of exchange on the ZSE, has swollen by nearly 60 million percent to $297 per US dollar at close Thursday. On a year-to-date basis, industrials have posted a growth in excess of 37 million percent and minings are up more than 25 percent. The growth compares favourably with inflation growth, and explains why equities have been the favourite of many investors over the past five years - inflation beating returns. The trend is unlikely to reverse in the medium term. Money market returns have remained in the negative due to incongruent economic variables, and whilst the property market looks attractive, the average investor will not summon the sufficient capital layout to be able to sustain investments on this market. There being no alternative investment market and given this environment of seriously high hyper inflationary environment investors are rushing to the equities market in a bid to hedge their financial assets against inflation. The hyper-inflationary environment is also mirrored by the now frequent adjustment of daily withdrawal limits. "Given the bleak inflation outlook and a continued strong demand for foreign currency by companies we expect the equities market to continue with its self-correction in the medium to long-term," explained a Harare equity watcher. "The continued low nominal investment rates due to the continued easier liquidity conditions on the money market coupled with the hyper inflationary environment should perpetuate the negative real returns on fixed income investments. As a result, non-interest-bearing assets such as equities should continue to be logical home for investments." Enditem