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Is 2005 the year of the bulls?

By Admire Mavolwane

THE year has really kicked off with a promising start for stock market punters. The benchmark industrial index is now firmly entrenched over the 1 million mark. Year to date, the index ha

s gained 31% to close Wednesday this week on 1 438 089,70 points. Two weeks of daily gains in excess of more than 10 000 underline the dominance of the bulls. Leading the pack in terms of capital appreciation is the “recovery” stock CFI, which, at $210, reflects a return of 250%. Hunyani is in second position with a 154% gain. Others making it into the top five are FBCH, TSL, and last year’s pariah stock PGI.

On the whole, 70 out of the 75 trading counters are showing positive gains with only RioZim still unchanged at $12,000 whilst Border, RTG and Falgold have lost ground since the year, which some quarters have already christened “two thousand and thrive”, started. Will the stock market thrive this year? It’s still too early to tell. Investors, particularly in this country, have short memories and from the looks of it the scars and tears of yesteryear have been forgotten as they pile into the stock market.

However, with interest rates softening, coupled with the decline in minimum lending rates, with some banks even advertising personal loans, speculators appear to be back in the market. Where there is money to be made (or lost) speculators will always be there.

The solution to the troubled financial sector, in the form of one big bank, it would appear, has had some problems getting off the ground, as the take off of the ZABG plane seems to have been delayed. Only three passengers have so far had their reservations confirmed, Royal, Trust and Barbican. Investors are keenly awaiting details, especially regarding the future (on the bourse) of the listed holding companies; Trust Holdings and Barbican Holdings and the particulars of their shareholding in ZABG.

A bull run on the stock market is, for various reasons viewed, unfavourably by monetary authorities the world over. The mercurial chairman of the Federal Reserve, Alan Greenspan is well known for being opposed to unwarranted asset price bubbles, particularly of the stock market variety, on the grounds that they are precursors to inflation. According to one school of thought, a sustained rally presages an upward trend in inflation and is the groundwork for asset price inflation. In other words, investors with high inflation expectations try to stay ahead through purchasing shares.

Still on inflation, the forces spurring on the country’s hyperinflation spiral seem to have been overpowered, with the December 2004 figure coming out at 132,7%. The November 2003 month-on-month inflation rate of 33,6% was a record high contrasting the December 2004 figure of 3,9%, the lowest since May 2001. The 2004 month-on-month inflation rate peaked at 10,1% in October while the average for the whole year is 7,3%.

On a compounded basis, (monthly) the increase in prices comes out at 133,1%. This is forty percentage points lower than the annual return on the stock market of 173,3%.

The average year on year on inflation rate of 385 % in 2004 is similar to the 2003 average of 384,7%, though obviously in 2003 the trend was upwards whilst 2004 saw a reversal. In contrast to 2003, wherein most company results at least matched or surpassed the average inflation rate, 2004 is likely to be the complete opposite for reasons which we have highlighted before. This fact casts doubt on the sustainability of the current bull run ahead of the December 2004 reporting season.

Although the inflation scourge appears to have been tamed, it is still way above the rates prevailing within the Sadc region. Our month-on-month inflation rates are even higher than our regional counterparties’ year on year rates. For instance, Zimbabwe’s annual and monthly inflation rates for October were 209% and 10,1% respectively. Prices in South Africa, our main trading partner, increased by 2,4% year on year and 0,4% month-on-month. During the same month, year on year rates of price increases were 18,1%, 12,2%, 10,6%, 4,88% and 7,6% for Zambia, Malawi, Mozambique, Namibia and Botswana respectively. The challenge to the authorities is to bring down the inflation rate to the same levels as our regional peers.

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