Where to invest

BLUE chips continue to attract investors on the Zimbabwe Stock Exchange (ZSE) (Visit http://www.zse.co.zw for live trades). Why? They are strong companies with a proven track record. Who can doubt the strength of companies like Econet, Delta, Old Mutual, PPC, Innscor, RIO to mention a few. By the way few companies make the list of not more than 15 blue chips on the ZSE. More than 80% of the money being invested on the ZSE is going to the blue chips.

Tried and tested business models, proven track records, tangible assets and strong cash flows are some of the attributes of these companies. It is not difficult to spot them. They are large and always post big numbers. Investors don’t like to fumble when searching for value. They know were the value is and are consistently investing in these companies. Keeping an eye on them myself! That is a good recipe to make money in the long-term. You don’t lose sleep over these companies. Given the stable economic environment there is very little space to speculate. Gone are the days when stock prices used to rise by more than 100% a day.

These days if you get a rise of 3-10% per month, you have done very well. Be grateful! Pick your stocks wisely. Due to the uncertainty that still prevails regarding the country future very few investors are willing to take a dip into the unknown by buying middle-tier and small companies. These companies often do not have strong anchor shareholders and are the ones in most need of recapitalization. At the end of the day it becomes a vicious circle, where their failure to mobilize capital leads to them not being attractive on the market. This in turn makes investors shy away from them and so on.

Expect a few exceptions. Some of these small cap counters will outperform the blue chips. The important thing is to try and take positions in some of these companies because in time and as the economic environment continues to improve these companies could easily become blue chips too.

As pointed out last week, the biggest challenge facing listed companies is access to affordable working capital and in some extreme cases lack of money to buy new equipment. Zimbabwe’s economy was in a recession for the last decade and during that time very little was re-invested. On the other hand investors face an even greater challenge of trying to decipher what is happening in these companies. Over the years we had become accustomed to hearing only good news. The harsh realities are starting to sink in now. As investors we need to recapitalize our companies in order to give them a chance in this stable environment where competition is becoming stiff with each day that passes.

Below I have attempted to identify some factors that I think deserve investor focus in 2010, in order to decide what to invest in.

Positives

1. The economy has stabilized (the country has witnessed rapid deflation) this has removed speculative activity in the economy and is encouraging investment into productive sectors
2. Financial liberalization is complete (investors are free to move capital in and out of the country) this has seen net inflows of money
3. Government has not intervened/reversed policies in the economy since adopting multiple currencies (predictable policies make planning easier)
4. Investors are flocking to Zimbabwe in search of opportunities (most investment has been in the mining and telecommunication sectors)
5. For once everyone is speaking positively about Zimbabwe (forget the niggling issues! Who doesn’t have them anyway? They will pass. We all want that to happen tomorrow don’t we?)
6. Money is now real (you can afford to hold cash and still come out right, no need to take unnecessary risks to preserve value)


Negatives

1. Political differences are costing the economy. (investors want certainty and stability)
2. Liquidity remains a challenge in the economy. This has driven up the cost of borrowing (as much as 38% per annum for unsecured lending)
3. There is very little saving in the economy. (This limits the amount of money available to borrowers)
4. The agricultural season is looking uncertain as reports of crop fatigue continue to pour in from the country’s main productive provinces. (this could mean that we will need to import more food, straining an already tight budget)
5. Crisis of expectations is looming large in the area of wages and salaries (threats of strikes etc)

When buying remember not to buy at the top! Don’t say I didn’t warn you. Always buy when the price is low and sell when it is high. It pays in the end to watch price trends overtime before you enter or exit a position. I wish it was that simple!

Things working again

For those who do not know me. My name is Nyasha W. Chasakara. I hold an Economics Degree from the University of Zimbabwe and have been working in Zimbabwe’s investment markets for more nearly a decade. A couple of years ago I used to write on economic and investments matters, offering advise to those who were willing to take it!. I stopped when things seemed to stop working. Who can blame me? Things are working again so I am back. Once a writer always a writer, Right!

It’s a brand new year and we have been using foreign currency as our legal tender for just under a year now. Back in the day (January 2009 to be exact) as my grandfather used to say things were different, our stock market stopped working, shops started selling their products in return for fuel coupons and hard currency ( if you had the licence that is) When hyperinflation was rife it was almost like fiction. Looking back to some of the articles I posted nothing was predictable, planning was impossible and yet all that has changed.

It was unthinkable to let your car fuel tank run to E and then look for the nearest service station to re-fill. You were asking for trouble. Now you can choose which service station you want, what time you want and how much you want. There is no doubt that life is much easier, thanks to the sanity introduced by the use of foreign currency as our legal tender (money). Money is real now.

The important thing is if you are reading this we all survived to tell the tale. Sadly not everyone did. It doesn’t get any real than that. Hyperinflation is something that should never again be experienced in our country or any other for that matter. Those who survived have many explanations on how they pulled through, ranging from God’s will for the devout to sheer genius for those who went to school (the learned ones, the trickisters, the dealers)!

Who has not heard of the term ‘burning’? It became a term used to describe the buying and selling of foreign currency, making margins in the process. Everyone became a mathematician over night, speaking of points, margins, spreads etc. Our survival instincts sprang up and we did what had to be done to survive.

Referring back to the little Keynesian Economics that I can remember we all made our little decisions in order to survive. It all makes sense to me now, how micro-decisions have macro-economic impact. We all pursued real assets, hard currencies and anything that could preserve value, raising prices of everything and because no company was producing enough, we all know what happened afterwards. Our local dollar fell in value becoming unusable, because we invested in consumption.

Enough of the history, Phew! That was then. As I write today we have a functional economy. One, where planning is possible: a prerequisite for success. We now worry less about what tomorrow has in store for us. It is a good feeling to have. For those with spare cash (there is very little of that I available of late), this is the time to take calculated risks and invest in the country.

Judging from the number of capital raisings on the cards by listed companies, the problem of liquidity and capital is not just affecting individuals. Inflation also decimated a lot of companies' capital base, hence the call for new capital. Looking at the just ended African Sun rights offer in which 61% of the $10m they were looking was raised, the underwriter took the rest, so all that money was raised , there is some appetite for Zimbabwean assets. Investors love Afrisun even though it is not making money at the moment. Africansun is what I would call an economic recovery play. It’s a company that will not make you money in the short-term but will make you lots of money when tourists start flooding our hotels. Would I buy it? Yes! Because tourists are coming to Zimbabwe.

The tourism sector just like the telecommunications sector (sweet Econet) are industries of the future, there is heavy capital investment to begin with, followed by years of cash-inflows, as the companies sell an improved product. Disposable incomes will improve so will spending. So do not despair. Your investment will pay off one day. African Sun became one of the first companies to share their financial results with the market last week. They revealed that 2009 was one of their worst years. Management said that their fortunes have already turned. Forward bookings to March reflect a doubling of occupancy in its resort hotels. This coming ahead of the 2010 FIFA world Cup showcase on in neighboring South Africa in June. I will leave it at that. Happy hunting.