THE mixed trading on the equities market this week reflects the fear by investors over the extent to which price increases cash shortages and outcome of talks will affect their investments.
Although negative real interest rates currently prevailing in the economy still provide good investment opportunities for non-interest bearing assets, the outlook for the equities market now depends on the outcome of talks, cash availability and survival of companies; especially retailers and producers.
Investors are keeping their money close to their chests as a positive outcome of the talks could open many attractive investment options in the country.
Since the beginning of the year, the stock market has been on a seemingly unstoppable bull run, fuelled by a well-documented hyperinflationary environment against a backdrop of hugely negative real interest rates.
The key industrial index opened the week low shedding 22,13% to close at 18 009,64. Minings followed suit plunging a massive 37,05% to settle at 18 522, 82 points.
On Tuesday, the stock market maintained the downward trend with the key industrial index plunging a further 19,95% to close at 14,416.67 points. The mining index followed the same pattern shedding 13,72% to settle at 15 982, 28 points.
On Wednesday the industrial index went up 7,06% to close at 15 845,39 points. The mining index also gained 9,91% to settle at 17 110,08 points. There was no movement on both indeces yesterday. Stockbrokers said that there has been no real investors on the market but speculators were unfortunately determining its direction.
The mixed trading has seen 44 counters trading in the red during July 30 to August 6 after the announcement of the monetary policy and speculation about the outcome of talks.
During the week, the settlement cycle was reduced from T+7 toT+3 so that payment and delivery of shares for a deal done today is settled on the third day.
However, many challenges lie ahead of the reforms as the monetary authorities are yet to develop a centralised securities depository (CSD), which makes it possible for a payment versus delivery (pvd) system to run smoothly.
Despite a cut in the settlement cycle, there will still be a physical movement of paper share certificates between transfer secretaries, stockbrokers and shareholders.
Along with failing disposable incomes which have led to businesses experiencing declining local demand for their products, a scenario that is likely to see lower earnings expectations when compared to December 31 2007 financial year end levels.
Excess liquidity conditions in the money market however continued despite the absence of liquidity injections through Treasury Bill maturities and high cash withdrawals after the review of maximum cash withdrawals.
Investment rates continued depressed with 7-14 day money hovering in the 100%-200% range as most financial institutions’ appetite for cash was low while the longer dated 60 to 90-day paper was quoted in the 250%-300% range.
By Paul Nyakazeya