Barbican Asset Management – Markets give in to authorities’ whims
FINANCIAL markets, which have been exhibiting marked resilience in the wake of a deepening economic crisis, are beginning to show
some signs of giving in as authorities intensify their monitoring in a bid to save the economy from total collapse.
But one wonders whether these controls are yielding positive results to warrant their continuation or are worsening the situation.
This week we wish to make a general review of events in our financial market paying attention to the money and equities market.
Broad-based selling across all counters on the local bourse has plunged the equities market into a recession.
Losses in most coun-ters including heavyweights have been pulling both the industrial and mining indices down as buyers increasingly desert the market. Initially most analysts have been attributing the weakening of the market to profit-taking which later degenerated into panic selling but have since changed their views.
Market sentiments seem to have an upper hand over fundamentals as most people shift from using basic valuation tools like earnings per share in making their investment decisions preferring to use speculation, rumours and emotions.
The 2004 National Budget due to be presented on November 20 has aroused a lot of interest among the people.
A number of people are taking their money away from the stock market ahead of the budget which most people predict to be a replica of last year’s.
However most fund managers see the current situation as presenting an opportunity to begin creaming off on selected counters as the market appears stable at current levels with little prospects of a major shake-off unless something nasty comes from the budget.
Lots of money has found its way from the equities to the money market where rates have been firming up although being still outperformed by inflation.
There is a high level of activity in the money market as most investors temporarily move away from equities to the less risky money market.
As a result, rates continue to firm with some dealers picking up money at rates as high as 185% overnight on the back of a widening deficit which at one time this month reached an all-time high of $101 billion.
However most dealers are reportedly reluctant to take long-term deposits at these high rates as they expect a substantial reduction of rates in the forthcoming budget.
Of late monetary authorities have shown a desire to keep interest rates low so that they can borrow for short-term expenditure cheaply.
For instance, the central bank has been rejecting bids at 91-day Treasury Bill (TBs) tenders mainly because most bidders wanted very high yields.
This has reduced most institutions’ TB holdings and thus resulting in most of them foregoing low rates associated with secured borrowing from the Reserve Bank of Zimbabwe (RBZ).
The institutions’ predicament is worsened by the fact that the RBZ no longer lends through the unsecured window since it has an effect of increasing money supply.
It is clear that the money market is still dogged by its own problems and cannot thus be considered a best investment alternative.
The foreign currency market that had become one of the most lucrative markets a few months ago has experienced its own problems.
The crackdown on financial institutions by the central bank is seen by most people as the major contributing factor to the current low activity in this market. Soon after the withdrawal of NMB Holdings Ltd’s foreign currency trading licence and numerous visits by RBZ inspectors to most firms suspected of handling large forex transactions, most players decided to operate underground mainly with their acquaintances and not with every stranger claiming to hold forex.
However parallel market rates did not change substantially as traditional buyers continue to patronise the market for hard currency for fuel importations.
The recently appointed forex taskforce is viewed by many as likely to worsen the forex crisis, as it is likely to recommend further stringent forex regulations.
The only hope now lies with the newly appointed RBZ governor Gideon Gono to brief the powers that be on the situation on ground and possibly convince them to review exchange rates to realistic levels. Being from the same sector he has a clear picture of what needs to be done and possibly make submissions to be considered in the national budget even before he assumes office in December.
Another interesting area nowadays is the property market which has been able to keep pace with and at times outperformed inflation.
Property prices continue to skyrocket and as a result, most estate agents have resorted to quoting prices in United States dollars.
However this market has remained a monopoly of the rich since the amounts of money involved are too large. Recently we have been seeing people coming from up-market neighbourhoods to buy houses in high density suburbs for speculative purposes.
Although currently being bearish, the stock market is expected to remain the best investment alternative for those who do not have large capital outlays needed in the property market since money market rates continue to trail behind inflation.
A careful investor is one who buys in a falling market and sells during times of euphoria.
We therefore see the current bearish trend as a temporary set-back which presents an investor with an opportunity to buy and not to shy away from the market.