Allegiance shifts to money market

Eric Chiriga



BULLS lost vigour this week after investors shifted allegiance to the money market when rates began firming and the central bank re-introduced of short-term

paper.


The key industrial index, which last Friday reached an all time high of 76 360 900, shed 6 683 797 points to close at 69 592 703 points on Tuesday, a day after the Reserve Bank of Zimbabwe brought back 91-day paper after its long-dated one-year paper failed to win support on the market.


“Investors are moving away from the equities market to the money market,” said Witness Chinyama, group economist with Kingdom Financial Holdings.


“The stock market had been bullish because of excess liquidity on the money market which depressed the interest rates,” he said.


Chinyama said the RBZ had this week embarked on an extensive exercise mopping up liquidity on the market.


Short-term rates had consequently firmed to between 400% and 450%, from around 350% last week.


Interest on seven-day investments surged from around 20% to 250%.


The market opened the week short to the tune of $2,3 trillion after closing the week at a surplus of $1,6 trillion.


There was huge appetite for short-term paper on the market as demonstrated by the high take up of the 91-day paper introduced on Monday.


“Because of the uncertain economic environment, investors prefer short-term paper,” said Chinyama.


Investors, he said were finding it risky to commit their funds into long dated-paper at 200% when inflation is at 1 184%.


Chinyama added that the introduction of the short-term paper had helped mop up excess liquidity, forcing rates to firm.


Some market analysts said the downward trend on the stock market had also been a result of investors shifting to the foreign currency market in anticipation of a devaluation in the forthcoming second quarter monetary policy review.


Parallel foreign currency dealers said there had been aggressive buying during the week, much of it driven by speculation over central bank governor Gideon Gono’s forthcoming monetary policy.