SADC Summit to be held on Sunday

To answer this question, it is necessary to consider the factors that have led to this unprecedented bull-run. The following are considered to be the major drivers of the equity market:
(a) Failure by the political players to resolve the political challenges facing the country.
Previously investors shelved some of their investment plans hoping that either the electoral process or negotiations would resolve the political challenges facing the country.
Unfortunately, this has not happened. The waiting did cost companies as they slowed down on their capital preservation efforts. As the old adage goes, once beaten, twice shy says, the companies have vowed not to repeat the same mistake and are going ahead with their investment plans irrespective of what happens on the political scene.
(b) The continued depreciation in the Zimbabwe dollar against major currencies due to hyperinflation has seen share prices also rising to equalise or narrow the gap in investment returns with other markets;
(c) The hyperinflation situation coupled with low returns on fixed income investments due to excess liquidity conditions on the money market has caused negative real returns.
This has seen investors going for non-interest bearing assets such as equities, property and hard currency. Lately we have witnessed inflation on the foreign currency front with prices of goods increasing in foreign currency terms.
(d) Continued excess liquidity conditions on the money market due to continued fiscal and quasi-fiscal expenditures by the Government. The equities market, by virtue of it being uncontrolled, has been the major beneficiary of such funds as investors try to hedge their financial assets from inflation. Furthermore, the resultant depression in investment rates coupled with hyperinflation have seen investors going for non-interest bearing assets such as equities.
(e) Existence of limited viable and legal alternative investment options has left investors with no other option, but to continue taking the equities route in a bid to hedge financial assets against inflation.
However, political instability seems to be the biggest explanatory factor of the current equities market behaviour. It should, therefore, be noted that the sustainability of the equities market, like the economic prospects of the country in general, is a function of developments on the political front.
In this regard, the implementation of the power-sharing agreement will see the bullish trend receding, as investors would want to assess its effectiveness. If they see no major breakthrough in terms of implementing sound economic policies and a re-engagement with the international community, speculators will again invade the financial and commodity markets and continue with their capital preservation efforts.
It is against this background that the announcement of the date for the SADC Summit to be held on Sunday in South Africa caused subdued performance yesterday. Meanwhile, investment rates on the money market remained subdued due to the continued excess liquidity conditions that prevailed during the week under review.
For instance, the 7-14 day rates were being quoted in the range of 0-50 percent while the 30-90 day rates stood in the 150-300 percent range. Investment rates are expected to remain subdued unless the monetary authorities stop the current quasi-fiscal expenditures.
This is unlikely as it is an extraordinary measure that is being used to keep the economy on its feet against the current drought of international financial assistance especially from the Bretton Woods Institutions.
In a related development, the Central Bank authorities have with effect from yesterday upped maximum withdrawal limits by 900 percent and 9,900 percent respectively for individuals and corporates from $50,000 and $10,000 to $500,000 and $1 million. The Bank also introduced with effect from the same day new $100,000, $500,000 and $1 million denominations onto the market in order to alleviate the prevailing cash shortages and to ease the plight of the transacting public.
The said measures taken by the Central Bank come hardly a month after the introduction of the $50,000 denomination and the reviewing of the maximum withdrawal limits for individuals to $50,000 and $10,000 for corporates on October 13.