With the country’s 2017 gross domestic product estimated to come out at 3,7 percent and the African Development Bank and other institutions forecasting an even lower growth rate; it’s natural that investors become selective when it comes to their choice of investment.
The effects of a sluggish economy often produce a disparate investment landscape, with some investors moving to the sidelines, waiting for the economy to sort itself out while those that remain active become much more selective about their acquisitions.
Against that backdrop, we review where smart money has been going in the last six or so months starting with the banking sector.
The rise of TBs
In the banking sector, treasury bills (TBs) and individual loans are two of the bright spots. Looking at the five banking financials that have been released so far, it looks like most banks are favouring TBs as an investment of choice.
CBZ has more than $800 million locked in TBs while ZB Financial Holdings has more than $117 million invested in TBs with $78,9 million having been bought from the secondary market.
Even the usually conservative Barclays Bank, has a TBs stock holding amounting to $56,9 million with its MD George Guvamatanga telling analysts recently that Barclays still has an appetite for more Government paper and will acquire more as soon as they become available.
“I know there has been (negative) talk in the market around TBs, but the Government of Zimbabwe has never defaulted on its obligation and we do not believe that they will in future.
“So, I think we still have some appetite to look at Government securities when they become available,” he said then.
Although FBCH’s results are not yet out, its CE John Mushayavanhu is also on record saying that the argument that Government will default on TBs does not hold water.
Whether this is a smart move by banks, it remains to be seen, but as for now bankers believe TBs offer them a good return, or is it a safe haven. Individuals are also getting a sizeable chunk of the loan book with banks going beyond the pay slip and vetting the employer as a precaution against bad loans.
The RBZ has already said there is no second coming for ZAMCO, which took over bad loans the last time around.
The stock market’s Bull Run
The Zimbabwe Stock Exchange (ZSE) has also been a destination of choice for local investors with turnover for the first six months of the year amounting to $115 million, maybe not at levels reached between 2010 and 2015 but more than the $89,3 million that was invested during the first half of 2016, which is the comparable prior year.
The bulk of these funds have gone into Delta and Econet, two of the few ZSE companies with strong brands and sustainable business models.
The year-to-date return on the ZSE’s main industrials index as at August 11, 2017 was 45,72 percent, probably the biggest return on the bourse since dollarisation if it ends there or better.
The mining index is also looking impressive with a 26,54 percent gain, notwithstanding why it has performed that much.
Are investors right to buy into equities?
Analysts have warned that investors buying into equities now, could be exposed to market correction when the so called “currency fears” subside.
The question though is, which one is a better devil between money locked in banks and that locked in stocks. The market has spoken on that one, and stocks have emerged as the winner.
Most asset management companies have been channelling funds under management towards the equities market.
A source at one of the biggest asset management companies in the country said currently 80 percent of new funds is channelled towards the equities market while the remaining 20 percent is invested between the property and private equity sectors.
Old Mutual recently completed a 1.6MW power plant worth $5 million in Chipinge and the group is expecting an internal rate of return of about 17 percent from the project.
CBZ Holdings’ asset management unit, Datvest, which normally focus on investments in the equities market, private client equity, money market portfolio management, fixed income investments, property investments and unit trust recently partnered with Fairview Properties to develop a housing estate through mobilising $5 million from various investment portfolios, signifying the value many are seeing in the property sector.
Another asset management company said their strategy has been on reducing all monetary assets owing the resurfacing inflationary pressures and currency uncertainty highlighted by acute foreign currency shortages.
“Given the inflationary pressures and with more bond notes expected to come through, we expect the same trend to continue. We will therefore remain biased towards holding real assets such as property and stocks so as to preserve value for investors.
“Furthermore, thrust is on ensuring we pay the right prices for these assets to also ensure we get real returns for our clients,” said the asset manager.
The asset manager singled out the banking sector as one area worth a look for smart money.
“The ongoing shortages of foreign currency and bank notes have benefitted retailers and banking stocks hence we believe these sectors will give better returns for investors going forward.”
In the property sector, the focus has largely been on residential development, although investors are also now seeing attractive opportunities in providing student accommodation. In a trading update at the company’s AGM, ZPI Managing Director Mr Edson Muvingi said the company has secured land in Victoria Falls and already paid $1,8 million as part of the company’s new thrust to build residential properties on demand.
Mr Muvingi said the company has a new strategy which is to focus on constructing residential properties where there is demand and capacity. Just recently, ZB Financial Holdings, also said it is on the lookout for land banks for residential development.
CEO Mr Ron Mutandagayi said the Group has budgeted a total of $10 million over the next 48 months for land bank acquisitions.
In response to emailed questions sent by Business Weekly, Mr Mutandagayi said at least $2,7 million will be channelled towards residential stands development in Plumtree and Kadoma. He noted that the bank is expecting a 9 percent return from these investments.
While there are a few more months before the end of the year, the investment decisions above, give us a clear signal.
Smart money is largely seeking safety rather than alpha.