Forget the whispers, bad news is back

DESPITE significant maturities, the money market has been trading largely in deficit as the Reserve Bank of Zimbabwe tries to contain credit expansion and speculative behaviour.



ca, sans-serif”>The central bank has again re-introduced the 30-day treasury bills (TBs) in a bid to mop up the excess liquidity.


On the short-end, investment rates are now yielding real positive returns for investors.


The 30-day TBs are yielding around 265% which translates to around 700% when compounded annually.


The worrying thing though is that the government still remains the major borrower on the local market.


The current rates obtaining on the money market are playing havoc on the government’s interest bill, exerting inflationary pressures.


Buy high, sell higher


The equities market softened in mid-September as individuals bolted out ahead of the implementation of the 5% capital gains tax.


This reversed towards the end of September as inflation fears crept through the market.


The stock market has extended its winning run as investors have targeted the blue chips on expectations of the blooming year-on-year inflation figure for September due out next week.


The bulls have come out in full force pushing the industrial index towards the much-watched 10 million mark, as it sprung to an all-time high of 7 596 245,21 points on October 5.


The mining index surged past the one million mark to record an all-time high of 1 022 783,07 points as at October 5.


That said, the frenetic herd mentality buying spree witnessed around 2003 is not evident, as at the moment investors have been curtailed by the punitive borrowing rates, and presumably other “safer investment havens” on the money market.


It appears the stock market is likely to provide a better total return than the fixed income market in the months ahead.


But history shows that in general, stocks tend to tread water as rates rise and then resume their upward course once the money market rates stabilise – on a year-to-date performance a number of stocks have surpassed the returns on the fixed income.


On the equities market, short-term movements are difficult to predict. Focus should be on the long-term direction, which has been decidedly upward overtime.


Lock profits


At first glance, the market may look expensive after surging 592%, year-to-date, though it is trading on a historic PER of 15,3x. With the big cap having rallied, investors might be wondering what next to do.


A suggestion on how best to play this area of expected out-performance might be to rotate within the group. Take profits in names that have run above a certain percentage (say 500% or more off their 2005 lows) and replace them with names that are up less than that.


The suggestion would be swapping the big gainers for what could be the next big gainers.


While the large caps have dominated the major moves in the recent rally, second tier stock (mid and small caps) might be the next big movers, should we continue to see the market keep its bid and not give back significant amounts of the move since the onset of the rally.


Ahead of the official release of the September inflation figures, some independent surveys have the year-on-year inflation figure running as high as 451%.


Pricewaterhouse has the high income inflation index punching up 25% month-on-month, with a high-income family requiring in the region of $1,57 billion. The low-income index is up 374% y-o-y and has spiralled to 42% month-on-month.


If these figures are anything to go, the official September y-o-y inflation figure will likely fall in the 350% region. – Own Correspondent.


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

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