IT is often said that it is during trying times that one’s true character emerges. The period between the present and the date of the most recent monetary policy from the RBZ’s corner suite can be comfortably described as such
for equity investors.
Few are sure where the market is heading — what is certain is the smell of burning flesh in the air as equity investors stare mournfully at their portfolios.
The graph is a brief snap shot of the carnage in the 21 days since the presentation of 2005’s Q2 monetary policy statement.
The time that the above performance reflects is not long — all of 21 days. Yet a Martian making a return visit to the country after leaving before Dr Gideon Gono had made his presentation would be forgiven for thinking that the outlook for the entire swathe of local companies had deteriorated badly between his trips.
The industrial index is down 16%, minings a quarter while losers outgunned gainers 61 to five with a single counter unchanged and shares losing an average of 14,6%.
It is often said that in life, there is a quartet of people to avoid — a man who wants a woman, a woman who wants a child, a child who wants money and…a stockbroker who wants a deal.
There can be little argument about the former three from either side of the species while fund managers will certainly agree with the latter. However, this time around, the brokers do have a valid point — fundamentals on the ground have not changed.
Banks are likely to find 2004’s over-provisioning of bad debts extremely useful when the central bank begins directly debiting from their accounts any outstanding public sector facility (PSF) funding at the end of this month – so their fall can, to a certain extent, be justified. Yet the fall-off in prices has been across the entire waterfront punishing saints — Delta down 8% — and sinners — Celsys down 12%- alike.
Forex shortages are worsening as indicated by the increasing spotlight on the beleaguered hotel sector — but that is hardly new information as the forex auction results are published daily. It is times like this that should have investors drooling at the prospects of buying into cheap shares with much limited downside instead of being paralysed with fear of stocks remaining low for an extended period of time.
In short, the logic behind our call to arms for equity investors goes like this: valuations are lower than they should be, most of the technical charts indicate weakness, perceptions of uncertainty are heightened and fear of the unknown appears to have overwhelmed greed.
Yet inflation — currently at 28% month-on-month according to the alternative Consumer Council of Zimbabwe basket — will drive companies’ profits at a time that managers have become more adept at operating profitably in the country’s treacherous terrain.
Interest rates? Assuming year-end inflation for 2005 at the upper-end of the adjusted forecast provided by the governor, quarterly compounded after-tax investment rates are unlikely to breach the 150% pa — and that figure is likely to trend downwards as government looks to cap its borrowing cost and the monetary authorities look to maintain the relationship between the benchmark 91 TB yield and declining official inflation.
So, to use a cliché, we insist that we have been there before. And the common mistake that investors the world over have made over the centuries, in fact, ever since trade kicked off on the world’s first stock exchange in Antwerp, Belgium, back in 1460, is believe that “this time it’s different”.
In spite of the initial illusions, it never turns out to be really different from the last time, whenever that last time may.
So what we see now are ideal conditions for re-adjusting portfolios — both for the medium-term outlook as well as in preparation for the next rally.
The advantage of doing such in a lull is that one is not distracted by the sound of the feeding frenzy as would be the case during a bull-run.
Analysis can be done in the cold light of day, in an environment unclouded by the euphoria and backslapping that often accompanies bull markets.
A further advantage is that buying can be done with little price impact on targeted counters — generally things are more orderly during these quiet times.
On the other hand, one could always try and guess when the market has bottomed out then start buying. Then again, that is risky gambling rather than investing — one would be better placed going off to the casino because when you leave there in the early hours of the morning, you are able to quantify your losses, draw a line under them and move on. With the stock market, you get to enjoy a daily reminder of your folly.