Asset managers raise red flag over worsening outlook

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Losing value ... Bond notes

Zimbabwe’s economy is drifting into a multi-faced crisis characterised by a volatile mix of heightened fears of recurrent hyperinflation, policy uncertainty, a contracting gross domestic product, infighting in the ruling Zanu PF party over President Robert Mugabe’s unresolved succession question and opposition protests against biased electoral rules.

By Chris Muronzi

Losing value ... Bond notes

Losing value … Bond notes

Amid fears of recurrent hyperinflation and the attendant economic meltdown, investment managers are shifting funds to non-monetary assets.

This comes after central bank chief John Mangudya last November introduced bond notes, a promissory currency he claims is backed by a US$200 million bond facility with a par value to the US dollar.

The bond note’s value on the black market, a good gauge of confidence in the unit, has been tumbling, with foreign currency dealers discounting it to the US dollar.

Rising concerns over the value of the bond notes, as well as a deteriorating economy charecterised by an acute shortage of cash, worsening foreign exchange shortages and massive job losses, have forced asset managers to seek refuge in equities and real estate in a bid to preserve value amid fears of recurrent hyperinflation.

Economists, investment managers and chief executives of leading financial services firms in the country are unanimous Zimbabwe’s economy is now in crisis.

Old Mutual CE Jonas Mushosho conceded last week at the group’s analyst briefing in Harare that the country was now facing turmoil.

He was responding to analysts’ concerns on what his group was doing in light of the economic uncertainties which point to recurrent hyperinflation.

Old Mutual has US$801 million in investments and securities, making it one of the largest fund managers in the southern African country. The group also has one of the largest pension funds in the country.

The fears come after pension contributions were wiped out at the height of hyperinflation in 2008. This means that pensioners could yet again lose savings and be plunged into untold poverty.

Mushosho said Old Mutual had worked out three scenarios to deal with an impending crisis, adding that the group would move to preserve value through investments in non-monetary assets.

First Mutual Ltd (FML) CE Douglas Hoto said economic uncertainties saw investments shifting to real assets in FY16.

In a statement attached to the group’s full-year financial results to December, chairperson Oliver Mtasa said the group would maintain a “cautious” approach in the management of its investment portfolio with key focus on value preservation.

First Mutual Wealth chairperson Robin Vela echoed similar sentiments.

“Negative sentiments pertaining to the economy led to the resurgence of investment in non-monetary assets such as the equities and properties, as investors shifted to holding real assets,” Vela said.
FML has US$143 million under management.

Asset managers have slowed down on equities after a Q4 bull run.

With Zimbabwe having slipped out of deflation in February after year-on-year inflation for the month stood at 0,06%, central bank deputy governor Kupukile Mlambo this week allayed fears that the country would degenerate to the hyperinflation era.

“We see that people fear hyperinflation but we are far from that. As long as we don’t start printing the bond note beyond the US$200 million facility I think we will contain inflation. What causes hyperinflation is the excess printing of money,” he said.

Zimbabwe slipped into deflation in September 2014 when the inflation rate went below zero.

Economist Prosper Chitambara said Zimbabwe was in “semi-crisis” and could end up with fast rising inflation.

“We are in a semi-crisis characterised by fiscal problems and have a domestic debt crisis emanating from a fiscal deficit among other things. Because of the high levels of informalisation in the economy it means government cannot collect revenues. Apart from these facts, there are also general low levels of confidence in the economy. This makes attracting FDI impossible,” Chitambara said.

“Inflationary pressures are already there as evidenced by the February inflation rate which saw Zimbabwe come out of deflation. This could point to rising inflationary pressures in the economy. If government supplies bond notes beyond the US$200 million, we could see inflation rising.”

Zimbabwe has a negative balance of payments position owing to heavy reliance on imports and minimal exports.

This has seen Zimbabwean banks failing to make foreign payments after nostro accounts ran out.

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