With Barbican Asset Management
WHILE the general investor expected inflation to surge upwards, no one expected it to rise this high. This has made almost everyone believe that the worst is yet to come. A
loaf of bread has suddenly become a luxury in most households. Unbelievable isn’t it?
During the great Asian financial crisis one investment advisor’s remarks got the vote to be the quote of the year. All the advisor said was: “Difficult times are here not only to see us suffer but also to make us think better and prosper in them…”
There is no doubt these are the hardest times ever in Zimbabwe but is there no opportunity to prosper in them? This week we take a look at the various investment avenues in our economy amid these difficult times.
The money market has of late been underfire mainly because of the negative interest rates that prevail in this market. Official inflation figures are hovering around 270% while money market rates are around 65% on average. One wonders if true inflation can be tracked and out-performed by any investment returns.
Money market rates have in the past six months risen from 30% in January to an average of 65% todate. In some instances rates of up to 90% have emerged in the market. With the current cash crisis in the banking sector, rates in excess of 90% will soon emerge. Maybe these are some of the opportunities arising out of the present difficulties.
For short-term investors, that is for investments as short as one to two weeks, this could be the best market otherwise their funds lie idle, especially given that it is a bit difficult to move into and out of other markets such as the equities and property within such short time periods. It therefore follows that investors with investment horizons as short as seven days either go into the money market or they sit on their money. But there are opportunity costs of sitting on cash.
Rates in the money market are likely to remain on the upside for a longer period of time due to current shortages. This market could be used as resting place by high-risk takers (stock market investors) when the equities market is on a retreating phase especially after a prolonged bull run.
The 200 000 point mark which the industrial index surpassed recently appeared to be a mere dream in the past few months. Very few investors are convinced that the index could be heading for the 350 000 mark before year-end — this is how most of them are left out as the few continue to harvest profits.
It is interesting to note how price controls are dying a natural death. Most companies had been finding the going tough because of these price controls. The “death” of price controls is therefore expected to enable affected companies to report respectable earnings in their next reporting period.
In light of the on-going fuel and power shortages, mainly because of foreign currency shortages, don’t you think we are yet to hear about two or more devaluations before the end of the third quarter? The implication of this on exporting counters is obvious.
We therefore expect most companies to report higher earnings in their next reporting and this is expected to push their share prices even higher. As the March reporting season is coming to an end, it would not be a surprise to see the market retreating in the next few weeks. Investors should take it as an opportunity to take positions before the next reporting period.
Property prices have been on the upside for the past three years. Rentals have also risen in sympathy. This is also a good investment avenue if one does not mind the investment period, which is in most instances long.
With no solid policies to contain inflation in sight, inflation will continue to gallop, and so will the prices of properties. As the current economic turmoil is likely to be with us for at least another three years, inflation will continue to gallop – this makes any property a cheap buy.
It is always safe and wise to board a wagon when it is stationary otherwise you are left behind. Likewise, investors should consider taking positions urgently otherwise they lose out. Remember that when the wagon stops you can always disembark to stretch your feet but again, remember to get back before it restarts the journey.