ACCORDING to the central bank governor John Mangudya, the bond notes will remain in use until the government announces a replacement local currency for the Zimbabwe dollar, which was demonetised in 2015.
This means that investors who fear a possible loss of value under the current muddled currency regime will be looking for alternatives that do not only preserve value but provide a return that translates into hard currency.
Finance minister Patrick Chinamasa has forecast an economic growth rate of 1,7 percent for the year, but the International Monetary Fund says in the absence of reforms and new funding, the economy is likely to contract by a negative 2,5 percent.
The southern African country has high levels of unemployment, a collapsing industry and an acute banknote shortage. The IMF said in its World Economic Outlook for October 2016, Zimbabwe would register a negative 0.3 percent growth for 2016, its first gross domestic product contraction since 2008, when the economy shrank by 16.5 percent at the height of a hyperinflation crisis.
Zimbabwe has been in deflation since December 2014, a trend seen persisting throughout this year. The number of investments that add value has also shrunk. We look at the options below.
The risk of property ownership is increasing with rising voids, arrears and poor liquidity, making the sector less attractive for short to medium term investors. Without robust economic growth, the property market will continue to perform poorly.
However, the spectre of a hyperinflation induced loss of value if the bond notes implode makes properties a sure way of maintaining value. Also, prudent investors buy when the market is down and perhaps this is the right time to start investing in some good strategic location.
Investors seem to have lost appetite for the the money market, the short-term nature of the investments.
Most investors, particularly institutional punters have left the money market in the last quarter of 2016 and migrated to equities, in belief that the introduction of bond notes was tantamount to government introducing the Zim dollar through the back door.
The fear of a repeat of the 2008 hyperinflation nightmare recurrence is real, according to some analysts.
“There is uncertainty in the monetary dynamics due to the coming of bond notes … a lot of 2008 symptoms are already there”, said one investment analyst.
Stock broking firm, Invictus Securities recently noted that in times of increasing uncertainty, investors find safety in size. This has been true as the strong stock market rally since last October has seen investors coalesce around blue chip stocks such as Delta, Econet, BAT; National Foods and Old Mutual, and in property stocks such as Pearl Properties.
Investors have tilted their portfolios to be more protective, reallocating assets from fixed income market to the equities market.
Bargain hunters are targeting large corporations with prospects of a quick turnaround despite current poor economic fundamentals.
The June 20 imports ban will benefit the light manufacturing industry which points to a promising future for Natfoods, Innscor, and Dairibord. Exporting companies such as Padenga are seen as prime.
Mobile and technology group Econet is seen as a price asset. Analysts feel the group is building a sustainable growth business model that could reward long term investors. It has tailored its operations away from voice with key investments such as health (EcoHealth), retail (Ownai), financial services (Ecocash), insurance (Ecosure), education (Ruzivo) and media ( KweseTV).
Meikles, Getbucks, Simbisa Brands and banks are all seen as safe bets.
On the mining space, analysts are watching Bindura and RioZim and expect the 5 percent export incentive to add up to the fortunes of these counters especially if commodity prices remain stable.
Unlike in stable economies where TBs hold the confidence of the markets as a risk free asset because of their backing by government, Zimbabwe has been struggling with its finances, which makes the risk of buying its paper very high. As such the informal market for the TBs pose more risk than investment opportunities for prudent investors.
There is a growing informal market for Treasury Bills (TBs) in Zimbabwe where some traders are discounting the government paper.
Treasury Bills (TBs) discounts are ranging around 15 percent for 2017 maturities and 20-25 percent for 2018 maturities, with smaller quantities attracting higher discount rates. This has presented opportunities for some investors who choose to hold the paper and receive the principal and interest payments from these TBs.
However, some analysts have argued that the government has in the past year failed to honour the payments and has been rolling over the maturing TBs to allow it more time to raise funding. There is a scenario where the government is paying for some maturing TBs using money raised from the newly issued TBs, they add.
They nonetheless TBs appear to offer a better option for financial institutions, in particular banks who are taking up TBs as an alternative to individual or corporate customers given the level of non-performing loans.
So far only Old Mutual has registered to trade its Class B shares on Finsec, Zimbabwe’s Alternative Trading Platform but it is a matter of time before others join as it presents opportunities for SMEs with good business models. Additionally, the ATP enhances liquidity because it provides an additional pool of liquidity to trade in existing instruments or other investment avenues.