Number one enemy’ remains at large

At The Market with Tetrad – By Brian K Mugabe

THE industrial index has continued to trade listlessly this year as the market still tries to digest the sustainability, if any, of current economic con

ditions. The direction of interest rates in particular has kept investors guessing with the burnt fingers of November/December 2003 still fresh in the memory.



Trading volumes have remained relatively low when compared with the bull run seen in the past two years, as institutional investors have proved unwilling to sell at current low prices.



Dramatic share price declines have thus been seen in counters on volumes of as little as 200 shares or less as individual punters who had entered the market with speculation in mind have had to offload to help meet the liquidity requirements induced by the “January Disease”.


To have a share price drop significantly on virtually no volumes, as happened for example with TSL which on January 12 went from $280 to $130 with only 2 800 shares sold, suggests that there is an artificial ‘lowness’ of prices prevailing on the exchange at the moment. Perhaps a way of incorporating volumes traded into the calculation of share price movements could also be considered going forward to smoothen out such distortions.


Not even the impending onset of the reporting season has managed to give the industrials a boost, and while by this time financials for the December period would have begun trickling in, it seems no company wants to bite the bullet and be first to report this year!


With tales of falling demand over the past couple of months filtering in from the corporate world, sentiment has certainly remained subdued as can be seen by making a comparison with the same period of last year. Where, as at February 11 2003 the industrials had put on 34% year-to-date with 73 of the then 77 listed counters having gained to some degree, this time around only 53 of the now 82 listed counters have gained, with the overall index up just 21%. The top 10 gainers at this stage last year had put on between 103% and 278% while this year gains have ranged between 82% and 160%.


We would expect the current trend to prevail on the ZSE with the market remaining in a sideways trading pattern in the short to medium term. For the contrarian investor, of course, the market doldrums provide a perfect opportunity to pick up shares at attractive valuations and take a long position, that is, if he or she can get the scrip!


The inflation figure for the month of January was yesterday published by the Central Statistical Office (CSO), unfortunately suggesting that the euphoria surrounding the “drop” for December was nothing more than a statistical aberration, more so given the fact that the impact of monetary or fiscal policy on an economy is never instant but always involves a time lag of some degree.


Thus the year-on-year inflation rate increased by 24,1 percentage points to 622,8% which is in fact a new record high.


Food inflation gained 30,1 percentage points on the December 2003 figure to 665,7% while non-food or core inflation gained 20,9 percentage points to 599,1%. The overall month-on-month movement was an increase of 2,5 percentage points to 13,7%, fuelled by increases in the average prices of “rent and rates, (here read the shocking price increases advocated for by many city/town councils), beverages, fruits and vegetables and bread and cereals”.


The year-on-year rate increase was attributed to much the same factors with the addition of increases in the price of meat.


Technically there is as yet no suggestion of the inflation rate actually beginning to decline, with the moving averages all pointing one way, up.


The trend should thus remain entrenched in the short term, although at least the Harare City Council has relented on the issue of parking fees which have been reduced from $23 449 a day to a far more palatable $4 600.


The charging of customs duty at the auction rate, the various duty exemptions in place notwithstanding, which is set to come into effect in the next two weeks once the necessary statutes have been enacted is likely to contribute to the upward pressure on inflation, as will the salary adjustments awarded to both public and private sector employees in January, among other factors.


Our “Number one enemy”, inflation, let us not kid ourselves then, is far from being put firmly behind bars.

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