THE underperformance of local firms has forced institutional investors to shift to the money market from the equities market as foreign investors have continued to drive the buy side of trades on the Zimbabwe Stock Exchange, analysts have said.
By Acting Business Editor
While historically the equities market has had a higher return in investment and continues to outshine compared to the money market, institutional investors have in recent years opted for the latter to meet their urgent cash obligations.
The industrial index last year recorded a 32% yield year-on-year compared to 12% for the money market. Traditionally, institutional investors like pension funds have had more exposure on the equities market resulting in them being main drivers of the local exchange. Experts, however, say capital constraints besetting the economy have left them rethinking.
The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.
On the ZSE, State-owned National Social Security Authority and insurance giant Old Mutual remain the biggest institutional investors.
With companies shutting down on the back of limited domestic and foreign direct investments, many firms have been defaulting their cash contributions at a time pensioners are demanding their benefits.
Local stockbroker Itai Chirume said the money market provided an avenue for pension funds to meet their urgent obligations at a time when companies are struggling to pay their pension contributions.
The Zimbabwe Congress of Trade Unions last year said the economy would be hit by massive company closures, projecting that 300 firms are folding each week.
The Insurance and Pension Commission (IPEC) last year took local companies to task over the non-payment of pension contributions after it emerged that arrears on self-administered funds were on the rise.
The insurance industry’s total assets grew by about 20% from $2,99 billion in December 2012, to $3,6 billion as at September 30, 2013.
“Activity by locals will remain subdued as the liquidity constraint continues to take its toll on consumers’ pockets. We maintain our view that foreign interest will continue to be heavily skewed towards stocks with solid operating fundamentals. We advocate for a defensive strategy in 2014 in the light of the obtaining operating environment which remains constrained for growth (tight liquidity, low capitalisation in industry), said MMC Capital in its weekly market report.
In its market report for this week, AfrAsia Kingdom said the issue of debt continued to confront most companies.
“Several local companies have had to renegotiate their loans in a development that has diminished the quality of most banking institutions’ loan books,” the report said.
“The poor country rating, which has deteriorated due to political factors, has destroyed international financiers’ confidence in the nation. Foreign direct investments as well as other forms of offshore capital have remained little as the nation lost its appeal as a safe investment destination.”
According to the International Finance Corporation, a unit of the World Bank Group, Zimbabwe is one of the worst investment destinations in the world despite being endowed with vast natural resources.