Tail continues to wag the dog

HARARE - Following marginal recoveries posted at the beginning of last week, the rise in the statutory reserves to 60% of retail/call deposits and 45% of wholesale deposits to be effected today turned the market bearish once again. B

y Friday shortages were already being reported on the money market as investors held onto their funds awaiting the acute shortages expected this week – resulting from the shock emanating from an additional 5% of deposits being taken up by the RBZ at 0%. However unlike a month ago when the shortages left banks in a critical condition, we expect proper anticipation could have resulted in a number of astute banks in a long position. If this is the case only a fewer potion will be short and the rest square and hence the market should not reach previous level of Z$6 trillion down. The shortages are expected to last for a week at the most.

Meanwhile investors who are failing to pick up any direction and the RBZ’s intentions on the money market are placing a larger risk factor on the Treasury Bills currently being issued. The possibility of all maturities in May and beyond being rolled over into 2-year paper can no longer be ruled out.

While all this happens the stock market is expected to record further losses early in the week before stabilising towards the end of the week as interest rates begin to soften. Despite the impressive results being reported by some companies the market has remained bearish with the total market capitalisation falling to about $360 trillion from over half a quadrillion dollars at the height of the bull run in January.

The market PE has also come down significantly from 68 to about 32 as a result of falling prices and the results that have been announced. The “tail continued to wag the dog” last week when the RBZ hiked the bank rate to 785% (unsecured), in response to the February inflation statistics. 

Yet another bloodbath was experienced with the declines outpacing the gains by 41 to 19. Some technical analysts who use the ratio as an indicator say that it signals an extended bear market.

The top gain of the week was CAPS, which advanced 47% to $2200 after taking a dive in the prior week. The company is set to announce its results on the 28th and these fluctuations could be reactions by those who have privilege information. The results were initially meant to be announced this week but were deferred to next week for untold reasons.

TSL and its associate HUNYANI each put on 38% to $11,000. Apex regained lost ground after putting on 27% to $1400 while CAIRNS advanced 19% to $9500. The top loss of the week was WILLDALE, which slumped 37% to close the week at $220. The stock had become overvalued during the bull run and had not yet re-priced itself in light of the bear market.

According to our forecasts the stock is still relatively expensive on a forward PE basis at the current price and thus investors should be cautious of how they apply the “buying into weakness” strategy.

OK which has been very volatile in recent weeks plummeted 24% to $1900. The exchange rate remained pegged at $99,201.58. 

Post published in: Economy

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