We have all been wondering why everything is at a standstill, why there just doesnt seem to be a way out. The economy is ticking along, growth predictions vary from 3.5% to as high as 7%. Great news! The economy shrunk by more than 40% in the last decade. You would think that this good news would be propelling the market forward but no! The stock market has just gone to sleep and for now it just looks like Investors have simply decided to wait for some catalyst! Could it be an anncouncement from the 3 Principals of the GNU, could it be results from the blue chips such as Econet, Delta, Innscor etc out later this quarter. Whatever it is, as long as it is positive news, our market will take off.
For now however we will have to wait and see what happens. Whilst we wait its important to take stock of what is happening around in the investment markets. Clearly the landscape has changed. We can now talk of having an investment on the money market. This is probably why the stock market is also quiet. There is now a real competing asset class, money market.
It is not common knowledge that there are increasingly attractive interest rates that are being offered in Zimbabwe. On the 30-90 day window, rates are ranging from 16-22%. It is also not a secret that most corporates in Zimbabwe are looking for moeny. So liquidity is generally tight. The little money that is available is going to the highest bidder. Rates of between 3 - 6% per month have been thrown around. Now you do your maths and you will agree with me that these rates are very high. Say you put away $10,000 at 16% for 30 days, you will get an investment return of $107 in 30 days after taxes. After 12 months you get $1360 compounded. That is almost a guaranteed return, unless something terrible happens!
In the hyperinflationary environment we all (risk averse investors included ) rushed to the stock market in order to preserve value. Now that money is real there is no pressure on all of us to invest in one asset class. Infact some investors are finding there way back to the money market. Unfortunately there are no clear benchmarks yet on rates because of the absence of government paper, such as Treasury bills and other treasury instruments.
I read an interesting analysis from a collegue which showed that the stock market's performance since the beggining of the year was fairly good and quite comparable to that of a short term money market investment. If you invested $10,000 on the industrial index you would get a gross return of 2.98% in the month of January 2010 compared to a gross return of 1.33% on the money market for the same period. If you had the guts to stomach the risk of putting your money with some of the higher paying banks, you could get more than 2% per month.
This is exciting news isnt? You can actually get an investment return from the money market that is real and the stock market is more stable than before. There some shares that grew by much more than the 2.98% noted above. This is the reason why most seasoned investors will argue that the stock market remains the best vehicle if you want to realise high returns. I agree 100% with that idea, but i am also saying that the time to have a balanced portfolio has arrived. You need to put some of your money on the money market too. After all Zimbabwe is probably the only country in Afica that is giving you double digit US dollar interest rates.
A word of caution to those who wish to invest in the money market. You will be offered very attractive rates but that does not mean ignore the risk profile of the investment house or bank taking your money. If the rate is too be good to be true it probably is! Some companies are paying as much as 6% per month interest as they are desperate to meet working capital demands. This is clearly unsustainable and decreases the investors' chance of getting their money back.
No comments:
Post a Comment