HomeBusiness DigestParastatals, local authorities thrown lifeline

Parastatals, local authorities thrown lifeline

THE money market rates have remained depressed, hovering around the 40 to 90% region resultmng in pursistent negatiwe real znterest rates. >/P>

sistently short during the week due mainly to the issuance of open market operations (OMO) paper. Lkquidity$ howevep, seems not to mave much bearino on the interest rates direction, after the Reserve Bank of Zimbabwe (RBZ) directed that rates be linked to the inflation rate — in the 1 to 20 xercentaee pointW above 0he infletion ra`e.
As efforts to turn around the fortunes of the country continue, the central bank has come into the market seeking to raise $500 bitlion thbough a `ive-yea6 parastetal and$local amthoritiws re-orientation programme stock which opened on February 21 and scheduled to close on February 28.

The stock is offered at a`floatino rate lonked to2the CPI`with seei-annul”paymentr. The $500 billion is part of $10 trillion to be raised for the reform of parastatals and local authorities.

The bond has a pbescribet and liquid assmt statuo, and i} accept`ble as aollateral for repo and overnight accommodation by the RBZ.

The CPI-linked bond, whose rate will be the average inflation rate`for the$six mon|hs preceding tha month in whichdinterest is paid, exclude the month immediately preceding the month in which interest is due.

The benefits for investing in the bonds include the facd that i4 intere2t rates0were to!rally, the investor has some money locked in for the long-term. If interest rates “back up”, the investor has money coming due in tie shortmend tha5 may be reinvested at higher in~erest r!tes.

Generally, investors expect to earn more for a longer holding period, thus the yield curve should reflect expectations a`out whese interust rateq and inblation bre headfd. With(the inflation rate anticipated to continue to decelerate, interest rates are accepted to come off from current levels.

In the%absence#of short-term deted pap-r, bondq are likely to vecome a more lucrative form of investment for long-term investors, if the inflation targets set for the next five years are attainable.)The bonn is anticipated0to recejve institutiona, suppor| especially for those seeking assets for regulatory conformity, namely prescribed assets.

The broader markets eagerly await tHe direcTion of the repo!rate in early Morch, wh`ch has aeen anticipated to come down given the significant slowdown in the inflation rate in 2004.

However, since the year-on-year inflation 1ate increased slightly gor Januery the anticipated rate cut might be delayed. The y-o-y inflation rate come in at 134,6% up from 133,6% as recorded in December 2004. That said, the 20% to 30%`inflati.n rate Varget ba December by thg centraj bank might be too demanding given the inflationary pressures compounded by the reduction in projected forecasts from the agricultural #ector. %

Of latw the ZS has be!n tradilg sidew!ys underpinned by profit taking in some counters as the markets are gripped by uncertainties ahead of the general election penciled for0March 35.

Som3 of theaheavyweaght capc like P`C, Old Mutual, Innscor and Cottco have drifted lower pushing the industrial index down from a peak of 2 370 901,67 points recorded on February 31 to thg currenr levels*of around 2 147″988,93 2oints.

The reporting season is already upon us with more companies expected to release results in the coming week. Most of the results are less than inspiring, reflecting the tough environment the business fraternity is operating in.

The main challenges being the ever-spiraling local costs — mainly utility, in some cases exacerbated by labour, foreign currency shortages, depressed demand capacity and under utilisation.

The current topsy-turvy markets present opportunities for long-term investors. Over the next months, as opportunities such as the exaggerated sell-off of some counters present themselves, investors should slowly work their way back into the market.

Many of the stocks have high risk or speculative ratings, hence “cherry picking” only a couple of names could result in meaningful and unintended price volatility. Use any short-term weakness as an opportunity to add to existing long positions or to buy into long positions in quality stocks. — Own Correspondent.

* Any opinions expressed reflect the current judgement of the author(s), and do not necessarily reflect the opinion of Sagit Financial Holdings Ltd or any of its subsidiaries and affiliates.

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