Zimbabwean investors will be in a catch-22 situation this year. There are no more safe havens for their money. The equity market to which most investors flocked following the lowering of interest rates in 2001 is now in negative territory. Though the key industrial index soared 125 percent last year, down from 152 percent in 2001, inflation which peaked at 175.5 percent in November, is expected to average 131.6 percent for the year meaning a negative return of 7 percent.
The situation could be worse if inflation soars to over 500 percent as predicted by the International Monetary Fund. But prospects could be better if it is reduced to 96 percent as advocated by industry which is now working closely with the government to end the country’s economic woes.
The seven-counter mining index fared better than the key industrial index, increasing 167.7 percent. Gold counters propped the mining index with Falgold leading the pack with a price increase of 700 percent. Its share price rose from 50 cents to $4.00 a share. Interest in Falcon was speculative and was centred on news that an investor was interested in a stake in the company. Investors, it appears, were interested in amassing shares from the company to offload them immediately after the new investor had come in.
Ashanti Gold also did well with a price increase of 471 percent. Its share price rose from $700 to $4 000 a share. Ashanti, which is listed in Ghana, London and New York provides a currency hedge. But it is not clear why another gold counter, Rio Tinto, did not do well. Gold production fell to almost half that of 2001 but despite a gold support price which rose from US$430 at the beginning of the year to US$863 an ounce at the end of the year, its price fell by 50 percent.
In the industrial sector there were some good pickings. Astra Industries, in which the government is a majority shareholder, saw its price soar by 2671 percent from $3.50 to $94 a share. Interest in the company also seemed speculative following news that the government wanted to sell off its stake. The sale of the government shares is now subject of a court action by an aggrieved investor.
Another engineering company Apex Corporation also did exceptionally well after its unbundling. Its price shot up from $2.35 to $50 a share. Three other companies in the top five were cable company, BICCCAFCA whose price went up by 1566 percent from $7.50, clothing retail chain, Truworths whose price soared 1477 percent to $280 and conglomerate Mashonaland Holdings whose price shot up from 35 cents to $4.70.
The financial sector, once the engine driver of the industrial index, was in doldrums with Kingdom Holdings losing 70 percent from $90 to $27 a share, followed by dually listed NMB Holdings whose price plummeted from $54.75 to $20. South Africa’s ABSA bank owned Commercial Bank of Zimbabwe was in third place. Its price fell from $35 to $23.
Despite the negative returns on the equity market investors will have little choice but to stick to the market. The money market still offers negative returns of more than 130 percent. Other safe havens are the property market whose prices rose between five and tenfold last year. But this market now seems to be dominated by those with access to foreign currency, or dealers who are trading in the speculative market by cashing in on products that are in short supply such as mealie meal.
Vehicles are another safe haven. Though the value of vehicles usually depreciates with age, wear and tear, in Zimbabwe, they are like wine, maturing with age. The best haven, though, is the forex market. Though the government has clamped on it by closing down bureaus de change, the parallel market is thriving with rates back to where they were, or even higher, in the case of the rand, than they were before the closure of the bureaus.
Zimbabweans working abroad are now a major contributor to the economy as evidenced by long queues at branches of Western Union which still pays out people in foreign currency. The International Monetary Fund says the Zimbabwe dollar could end up trading at close to $3 000 to the greenback up from the current $1 500. Savings have dropped to 5 percent of GDP.