Financial Gazette (Harare)
Chengetai Zvobgo
10 July 2009
Harare — It appears some investors are still living in the Zimbabwe dollar period where "phenomenal" gains were recorded on a daily basis.
Things have changed and if those investors' attitudes do not change, they risk being left behind. This is now a US dollar environment and a gain of five percent in a day is "huge" especially given that we are experiencing a deflationary environment.
There are some investors who only go into the market because the market is going up in anticipation of reaping enormous returns during the bullish phase.
This short-term investment strategy has produced horrible results under the current stable market conditions. The most basic lesson to learn from the market is that it is not always a one-way bet, that is, the market will not always go up!
The Industrial Index shed 4,31 percent in the week to close at 145,03 points whilst the Mining Index lost 8,35 percent to close at 250,45 points.
Movers in the week were led by Zeco, up 80 percent at 1,8 cents, followed by Caps and Gulliver, both up 50 percent to close at three cents, and 1,5 cents, respectively.
Shakers were led by Truworths, down 43 percent at 0,8 cents, followed by Willdale, down 37 percent at 0,25 cents and Celsys, down 29 percent at 0,2 cents. ABC and Nicoz completed the week's top five losers. There were 24 gainers and 32 shakers.
Historically, patient long-term investors have been rewarded by the long-run performance of the equities markets despite the harsh economic environment, and a very good example is Warren Buffet who once said, "I buy on the assumption that they could close the market the next day and not reopen it for five years."
Generally when the market is depressed it is the time for investors to develop and build some long-term investment strategies -- strategies that will carry the investors through the emotional cycles of the market.
Whether one is a small individual investor, fund manager or stock broker, one needs a strategy for picking stocks. There is no single strategy that works for every investor, and sometimes a combination of different strategies can produce the best results.
In the long run, by understanding and anticipating the emotional cycles of the markets, investors will be better positioned to tolerate and benefit from market fluctuations.
Investors should "jump in" during periods of market corrections under the premise that the next bull market "wave" is already on its way.
The current market environment presents long-term investors with a chance to "jump" in into quality stocks.
No matter what market you are referring to, all have similar characteristics and go through the same phases. All markets are cyclical. They go up, peak, go down, and then bottom. When one cycle is finished, the next begins.
The problem is that most investors and traders either fail to recognise that markets are cyclical or forget to expect the end of the current market phase.
Another significant challenge is that, even when you accept the existence of cycles, it is nearly impossible to pick the top or bottom of one.
But an understanding of cycles is essential if you want to maximise investment or trading returns. "If the job has been correctly done when a common stock is purchased, the time to sell it is almost never," according to renowned economist Fischer.
Meanwhile, Zimbabwe's cost of living for a family of six has increased 15 percent in the month of June as the country experienced a surge in price.
Latest figures released by the Consumer council of Zimbabwe (CCZ) revealed that the cost of living increased to US$502 in June from the May figure of US$437,62.
There was an increase in the food basket from US$111,06 in May to US$138,05 in June, reflecting a 24 percent increase.
While the month-on-month inflation continues to be negative for the period to May, it has been falling at an ever slower rate for April and May, signifying an increase in prices.
The increase in prices has two main sources. Increase in oil prices and the firming of the rand against the US dollar have resulted in the recent increase in price level.
Oil price has increased 30 percent in the month of June to US$1,30 while the rand has appreciated by 2,5 percent to R7,7987 against the US dollar in the same period. South Africa remained our major trading partner and gaining of the rand will make imports expensive. This will hold as long as merchants price their goods in US dollars.
Since March this year the fuel industry is struggling with constrained capacity challenges coupled with a very unfavourable fuel import tax regime. Oil companies used to get cash upfront in exchange for fuel coupon that they would use in future.
Motorists are now paying cash at pump denying the companies a cheap pre-financing capital from customers. It was difficult for oil companies to get funding from the banks to finance fuel procurement.
The banks demand collateral for whatever money they lend yet most oil companies in the country do not have any assets and are renting the premises from which they operate.
To further compound their quandary, the companies are currently paying 60 percent import duty on fuel in addition to Zimbabwe national roads association levies, Noczim debt redemption levy, carbon tax and Noczim's strategic reserves tax. This has been eroding oil companies' capacity to import more fuel into the country.
With deflation slowing, the drop in prices over the year is unlikely to be so pronounced although it is almost certain that Zimbabwe will finish 2009 with a significant drop in prices over the year. At the same time, because it becomes ever harder to raise productivity and efficiency, the deflation becomes less each month.
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