Who was the winner in the first half?

LAST year in April, a week before the 2005 first quarter monetary policy review, governor of the Reserve Bank of Zimbabwe hosted a luncheon for his colleagues in the banking sector. As they were partaking in the delicacies, the governor is said to have express

ed — possibly in passing- his discomfort with the buoyancy the stock market was then exhibiting. It is further alleged that the whole room froze momentarily, such that one could have heard a pin drop. Some of them are rumoured to have lost their appetites and could not wait to get out.

The meeting was held on April 15, which was on the Friday just before the relatively long Independence holiday. By the time trading resumed on the Zimbabwe Stock Exchange (ZSE) on April 19, investors were more than ready to bail out. The selling frenzy saw the industrial index losing 18,2% in four days. In fact, it lost 7,2% on the 20th, a feat which was to stand as a record for close to eight months before being broken on November 17 of the same year, when a hefty 8,8% was lost on the back of a10% and 7% decline in the share prices of Delta and Innscor, respectively. These declines were attributed to poor interim results for the former and a not so good trading update from the latter, as well as the fact that investors were cashing in ahead of the budget.

True to tradition, the Governor this Wednesday held a morning briefing, not lunch this time, with the banking sector chief executives. In contrast to last April the latest event has not resulted in panic selling on the stock market. Neither has much information filtered out from the CEOs to the investment market which appears to imply that either the bank leaders have in their personal capacities stopped playing the stock market game or they are no longer as loose-mouthed as they were in 2005.

What we have been able to glean from the meeting, however, is that statutory reserve ratios for banks will be reduced by 2,5 percentage points across the board with effect from Monday next week and that the capitalization deadline of 30 September 2006 will stand. Apparently there was no word on the all important interest rate and foreign exchange policies.

One Wright Morris once said: “The past is useless. That explains why it is past.” Nevertheless, this week, and ahead of the monetary policy statement, we count the takings from the investment markets during the first half of the year. For the six months to June 30, much to the disappointment of those who ascribe to the notion that shares are the best hedge against inflation, the industrial index significantly underperformed its arch-rival, having gained 196,9%.

The stock market opened the year on a rather promising start, which had seen gains of 145% being achieved in January alone, thereafter notched an additional meagre 51,9 percentage points. By comparison, during the same period the monthly compounded inflation rate stood at 229,4%.

The George Soros wannabes, who in the same manner as their idol who in 1992 bet against the pound devaluing and netted US$1 billion in one fell swoop, should be smiling all the way to the “road port” or “world bank”. Currency dealers who invested their faith in the US dollar at the beginning of the year at a rate of $100 000 could have cashed out at $400 000 at the end of June, a healthy return of 300%. The fortunate ones who could access foreign currency at the inter-bank rate of $88 000 back then in January enjoyed a much healthier return.

The money market players had a swell time too and most of them can rightly walk with a bounce. Although investment interest rates for the short durations have had their swings, they have largely, since mid-February been very attractive. Theoretically, an investor who bought $1 billion worth of 91-day treasury bills, back in January at 340% per annum would, at maturity, have earned $850 million in interest.

For the six month period to June, the return is even more as the money market player had the option of reinvesting the capital plus interest at maturity in early April. His option would have been treasury bills of the same tenor at 525% per annum. By July 3, when his investment matured, an overall return of 143% would have been achieved.

On a rather more academic level, compounding quarterly using the current 91-day treasury bill yield of 510% and assuming the rate is not reduced will at the very least see an investor earning an effective return of 2 578,7% for a year. At this juncture it is difficult to envisage either ‘currency’ or the stock market surpassing such a return.

Lastly, we take a look at the belated interim results from Apex. The recovery plan anchored around refocusing group, expansion and consolidation in core sectors seems to be paying dividends. Turnover for six months to April 30 2006 grew by 840% from $83 billion to $783 billion. Operating profit showed a significant improvement from a loss of $3,9 billion in the prior period to a profit of $136,8 billion.

Looking at divisional performance, Apex Holdings, which houses Zimcast, All Metals Foundries, McMeeken, Precision Grinders and Philpott and Collins, recorded sales of $413,5 billion which was 1 085% above the prior year though the foundries division had to battle with a stagnant official exchange rate, shrinkage in local demand, delays in the supply of foundry coke and increasing prices of raw materials.

In the engineering division volumes remained static but performance was well ahead of last year. Overall, operating profits increased from a negative $13,7 billion to a remarkable $102,3 billion

Phoenix, a ZSE-listed subsidiary of Apex, contributed 47% to revenues and almost half of the operating income. The business was, however, constrained by high interest rates and reduced local
demand. Judging by the latest numbers, Apex seems to be finally coming right. What management needs to do now is to spruce up the image of the group. They need to make Apex at least as jazzy as the likes of ART, CFI, Cottco, PGI, CBZ and ZSR, companies that easily come to mind when one talks of second tier stocks.