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Beware of the inflation monster

PIGGY has been involved in a lot of discussions around the shape and form of the Zimbabwe economic recovery in 2021. More recently, concerns about the impact of the Covid-19 pandemic (Delta variant) on growth, the exchange rate and inflation have emerged.

Batanai Matsika

In addition, riots and social unrest in South Africa also pose a major risk given the trade relationship with Zimbabwe and logistical issues. An analysis of the figures from the Zimbabwe National Statistics Agency indicates that annual inflation has been on a downward trajectory.

Latest numbers show that the inflation rate stood at 106,64% in June 2021 compared to 161,9% May 2021. Monthly inflation stood at 3,88%, gaining 1,34 percentage points on May’s rate of 2,54%. Zimbabwe’s annual rate of inflation has indeed been on a downward trend since it peaked at 837,53% in July 2020.

However, the big question is whether the Zimbabwean dollar (ZW$) will remain stable in the outlook period.

Piggy has noted with concern that a significant number of key economic players continue to face shortages of foreign currency given that the economy is import-dependent and productivity levels remain low (capacity utilisation levels below 50%). The implication for households and individuals is that there is need to consider bankable means of preserving the value of incomes.

Piggy believes that an understanding of personal finances and available investment options will be critical in 2021 and beyond.

What does all this mean?

Individuals, households and businesses in Zimbabwe will have to investigate ways of preserving value to avoid wealth destruction. The norm is that in an inflationary environment, investors turn to real assets such as commodities (gold) and property so as to hedge against inflation.

However, in Zimbabwe, investment options are limited. Investors cannot execute direct gold purchases.

In addition, the real estate market is priced in United States dollars. This leaves the stock market as a feasible avenue to preserve the value of Zimdollar balances.

Piggy has always maintained that the stock market offers a good option to hedge against value destruction over the long-term. However, timing is everything on the stock market.

In his book Stock Market Intelligence, Investing Made Easy, Jeff Luke, proposes the “PALMS Filtering System” as a technique for stock picking. Investors should answer the questions, as shown in the figure below, before buying a stock.

The PALMS technique is indeed useful for identifying good stocks to buy as it is in line with the stock analysis methods used by investment analysts.

Remember the key is buying low and selling high. Piggy likes companies with regional operations that are well managed or are net exporters as they provide value preservation opportunities to investors with a long-term perspective.

But how does the market work?

Before venturing into the trading and investing arena, education is critical. piggybankadvisor.com is focused on increasing the participation of individuals, households and businesses in local and global investment markets.

The platform provides access to blogs and articles covering topics such as business, economics, stock market and forex trading, cryptocurrencies and general personal finance.

It is a fact that most people struggle with knowing how to manage personal finances, reduce debt, invest on the stock market and even plan for their retirement.

Piggy recommends the following tips for one to improve in terms of financial literacy;

Reading financial newspapers and journals: this helps in terms of keeping oneself updated on current financial market developments;

Personal finance websites and blogs: stock exchange websites (Zimbabwe Stock Exchange) also assist in terms of educating people on stock market investments. Some personal finance websites have also adapted social media in their outreach strategy;

News/TV channels on personal finance: TV channels such as CNBC Africa and Business Day TV offer a good avenue to learn and keep abreast of financial products and developments;

Setting up investment clubs: individuals can come together and form a club to learn more about investing in stocks and making a return on investments; and

Idea sharing and engagement through the Piggy WhatsApp Groups and the Telegram channel.

In conclusion, get started by being part of our trading and investing community as well as downloading a copy of the SECZIM Investor 101 Handbook from www.piggybankadvisor.com

Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. — batanai@morganzim.com/ batanai@piggybankadvisor.com or +263 783 584 745.

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