ABOUT US

CONTACT US

ZIM LINKS

Zimbabwe: Weekly Financial Market Report

• Business leaders strike conciliatory tone

ON June 25, 2007, the government directed manufactures, retailers and wholesalers to reduce prices of basic commodities, including transport and newspapers, by up to 50% with immediate effect.

This populist policy was taken to prevent the prices of commodities that had risen by more than 300% within one week from going up further. This appears to be the government’s answer to reducing the rate of inflation, which has topped 4500 %, the highest in the world. The second highest inflation rate is in Iraq at 52 %.

By the end of this week, the Taskforce had ordered the arrest of 1300 business executives in the price control blitz being enforced by the military and intelligence operatives.

The directive by the government has sent shock waves in the financial markets particularly the equity market, which went on a spiral.

The drastic market response to the price controls resulted in most investors being found guilty of panic selling, pushing the market down further. This resulted in 62% of the listed counters trading negatively.

The industrial index fell by 11.27% to 38,272,767.65 points during the week to Friday (06/07/07) while the Mining index fell by 26.40% to close at 16,730,929.16 points during the same period.

The retail counters led the losses as uncertainties persisted on the continued viability of the sector. The other counters were affected by the contagion effect. The financial and the mining sectors do not appear to have been affected by the price controls.

OK went down by 42% to Z$750, followed by construction counter, PG1 which shed off 38% at Z$8000. Other counters, which were affected were Innscor, after news that two of its directors had been arrested of the price wars, Cottco went down by 34%, Celsys 34% and the clothing giant Truworths.

Movers and Shakers:

BIGGEST MOVERS BIGGEST SHAKERS
UP				DOWN
Counter	29/06/07 (Z$)	06/07/07 (Z$)	% (+)	Counter	29/06/07 (Z$)	06/07/07 (Z$)	% (-)
Halogen	700000	1200000	71	OK	1300	750	42
NTS	1500	2400	60	PGI	13000	8000	38
Gulliver	12000	18000	50	Celsys	380	250	34
CAFCA	17000	25000	47	Bindura	75000	50000	33
RTG	3400	5000	47	Truworths	1400	950	32

Stock Market Outlook:

We expect that the market will continue to be driven by panic sellers resulting in continued bearish conditions. This should however be short-lived; the market is expected to rebound in the next couple of days. Investors are advised to continue buying on weakness and pick up shares on their decline before prices start going up. Recommended stock picks, Econet, Old Mutual, Kingdom, Steelnet, Zimsun, Bindura, Delta (all picks recommended on weakness)

Money Market Report:

Money market rates were relatively depressed swinging into a surplus position on the back of some liquidity injections into the market by the RBZ for tobacco payments to the farmers as well as for gold purchases. Rates for 7-14 day investments were around 100-150%. Despite the bearish stock market conditions, real return is till on the stock market. Investors are advised to watch the market and pick up value dropped by timid punters who joined in the ‘run on the bank’ in selling their stocks short.

Economic Outlook:

Inflation figures are expected to be released this week. It is unlikely that the price controls would have impacted on the June figure. We still expect the June figure to be way above the May inflation since the price of most basic commodities had more than doubled during the month.

Forecasts are that the June inflation figures will be between 5000% to 5800%. Thereafter, the impact of the price controls may cause an artificial drop in inflation in the July and August figures. The effectiveness of price controls has proven to be empirically flawed; the negative effects will outweigh the benefits. One of the effects of price controls is the increase in demand for commodities as more people can afford to buy the products.

Secondly, the increased demand and purchase power will cause the accumulated supply to be bought up quickly from merchants. Human being by nature are given to panic, looking out for their welfare ahead of any common good. This will lead to hoarding, which in turn will spur widespread shortages. As a result, merchants will not be able to replace products, as producers will not be willing to produce at a loss.

The economic justification for any business put simply, is that firms try to ensure that the revenue obtained from the sale of products exceeds the costs incurred in supplying those products. There is an urgent need to address policies that address the cost side of production, rather than the militarization of prices and holding market forces at ransom through the barrel of a gun. On a grand scale, Communism tried and failed, it is unlikely that Zimbabwe will succeed where Russia, Yugoslavia or Cuba left off.

To discuss any of these investment options or for feedback, contact Coronation Holdings.

Lance Mambondiani is a Director of Coronation Financial Holdings, a financial advisory company registered in the UK; he can be contacted at coronation.uk@btinternet.com

JOIN THE DEBATE ON THIS ARTICLE ON THE NEWZIMBABWE.COM FORUMS
newsdesk@newzimbabwe.com

---

All material copyright newzimbabwe.com
Material may be published or reproduced in any form with appropriate credit to this website

---