Barbican Asset Management

Money market rates to be short-lived

ON September 3 the Reserve Bank of Zimbabwe (RBZ) forced money market rates to around 80%.


The premium

on the repo rate was reduced to 5% from 20% for secured money and the premium for unsecured money plunged 30% to 10% from 40%.


Money market dealers now quote rates of between 75% and 95% compared to between 110% and 130% last Monday.


Minimum lending has been climbing steadily and is now around 99% and expected to go through the 100% mark soon.


The banking sector has been under immense pressure to offer positive returns as inflation continues to wreck havoc.


Even when money market rates went as high as 130% this was still too far from yielding positive returns with inflation around 400%.


One is then left wondering why interest rates have been forced down when the money market is 30 billion short and rates coming down-crazy.


Supplementary budget


Runaway inflation has seen the funds allocated in the last budget running out before the end of the year hence the supplementary budget provided to see the various ministries go through the remaining part of the year.


The greater portion of the budget is supposed to be financed through the banking sector.


The government must have thought of financing this cheaply by lowering the money market rates. It is therefore very likely that once the funds needed are raised, the authorities would gradually lift the control.


Forex market


Business has come to a standstill as commercial banks have been raided as they are accused of trading forex in the parallel market.


The exchange rates had soared to US$1 to $7 000 in the parallel market. Demand has remained high as most individuals and companies have resorted to importing their own fuel. This has drastically reduced transport problems in the country.


Our authorities are however, well-known for inconsistency in their policies. The policies and strategies usually put in place are unsustainable hence the clampdown on commercial banks is also expected to die a natural death.


Stock market


The stock market was on the downside for the greater part of August and crushed severely when a crackdown on banks on foreign currency issues began.


This saw all financial counters ie those in the banking sector shedding more than 50%, NMB Holdings Ltd (NMBZ) went $100 down to $110 while Trust Holdings Ltd went down 70 to 183.


Panic selling dominated the market as investors continued to dump shares. The market is however recovering as most stocks had become so cheap to trigger buying pressure.


It is however this time of the year when the stock market comes to a halt and starts again slowly.


The behaviour of the stock market is not unusual. As we approach the festive season, sellers usually outstrip buyers hence a downward movement in stock prices.


It is this time that stock picking becomes a function of comprehensive evaluation, a time to separate cash cows and dogs, a time to separate investors from punters and a time to make use of information than mere noise.


Property markets


The property market continues giving above inflation returns, property prices have remained on the upside. Many sellers are now quoting their prices in forex in an attempt to track inflation.


Outlook


Inflation is likely to increase at a faster rate during this last quarter.

The prices of commodities have gone four-fold in the past week, bus fares have also gone up by almost 200%. The stock market is likely to continue gaining marginally. This will be sustained by the September and October reporting.


Counters rated buys in our books include NTS, Zimplow , Ariston, CFI and RTG. The money market rates are expected to rise back to 130% and even go further to 160%


Investing tips


Investors are sometimes left to guess on the right time to buy and sell stocks. It is usually very prudent to buy in a falling market and sell in a rising market.