Liquidity crunch lures short-term investors

LIMITED supply of funds has made the money market the most ideal destination for those looking at short-term investment as the returns are high and continue to firm.

There have been continued liquidity problems on the money market following the official announcement of the use of multiple currencies in February last year and this has seen return on investment slowly firming.
This trend is expected to continue for as long as the country is using multiple currencies and the country is unable to attract huge cash injections onto the market.
Analysts at ZB Financial Holdings said the money market started the year with very high returns.
These were even higher than what was quoted during the last three months of 2009.
Investment rates on the wholesale market firmed during the beginning of this year as supply of high volumes of funds on the market remains limited by structural market-wide challenges,” said the analysts at ZB. “For instance, 30-day investment rates that were attracting average rates of 15 to 20% during the last quarter of 2009 are now being quoted at between 25-35% whilst 90-day rates are being indicated at rates above 30%.”
There are a number of high- yielding business opportunities on the market which allows financial institutions to borrow expensive money to finance the identified high-yielding investment opportunities.
Companies had anticipated a rush of funds onto the market but they have realised that this may not be coming any time soon and they are left with no choice but to get the expensive money.
This will have an effect on their pricing structures but getting the money from the local money market is the best option especially in the light of the strict requirements for offshore finances.
Financial institutions have also realised that there is potential on the local money market with new players either exploring the opportunity or coming in.
“Extreme competition for funds on the market is also forcing new entrants on the financial sector; and those with thin balance sheets to quote rates on the upper range to fend off competition from the more stable financial institutions,” added ZB.
A report from Kingdom Stockbrokers last week said while domestic data on money supply growth, money market liquidity and the general state of the money market remains unavailable from the Reserve Bank of Zimbabwe, they expected the investment rates to continue firming on the back of limited supply of funds on the market.
Investment on the money market lures those looking at short-term investment with certain returns. If it’s a 90 day investment at 30%, one is sure of getting that amount at the end of the period unlike the fluctuations characterising the Zimbabwe Stock Exchange.
This explains why up to 40% of funds invested on ZSE were from foreigners who are comfortable with a long tenure and the fluctuations precedent on ZSE.
ZSE chief executive Emmanuel Munyukwi said the local bourse had seen a significant increase in the number of foreign investors from around 2% before the introduction of multiple currencies to 40%.
ZB said: “The rise in participation by foreign investors on the ZSE was enhanced by the fact that local investors were constrained by lack of investment funds arising from tight liquidity situation in the economy.
“Furthermore, the resurrection of alternative markets such as the foreign currency and money markets further dampened activity by local investors on the stock market.”

 

Leonard Makombe

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