adminan emerging market that is not as complex as a developed market, hence foreign investors can be comfortable to invest their funds to get exposure in a promising emerging market.
Banks now largely populate the financial sector with very short-term maturities for both assets and liabilities because of fluctuating interest rates and the liquidity crunch. This presents clear opportunity for long-term foreign investors who can take long positions by providing long-term funding to the banks and the productive sectors of the economy. Several reports revealed that the banking system appeared generally sound, supervision broadly adequate, with stress tests indicating that the system is resilient to significant shocks, including credit, interest rate and foreign exchange.
The key concern was the liquidity crisis that is affecting the whole economy since the multiple currency system was adopted in early 2009. While a few banks are reportedly on shaky ground, that presents additional opportunities to deep-pocketed foreign investors who can inject liquidity into the struggling banks and get equity stakes.
Besides holding onto equity that restricts them, foreign investors can consider look- ing at other instruments like debt and derivatives.
Debt instruments such as the money market, through income have a relatively less exposure to total loss when compared to equity as in monthly income plans.
Investment in debt securities provides a return of capital on a fixed date and usually periodic interest payments that tend to be higher than the interest payments available on bank deposits.
Reputable companies like BancABC are active in the money market with instruments like the bankers’ acceptance. A bankers’ acceptance (BA) is a discount money market instrument issued by the private sector or an individual. It is a bill of exchange drawn on and accepted by a bank and is a negotiable security.
The risk and reward relationship of a BA is indicated by the rate quoted on the BA with low-risk borrowers accessing funds at relatively cheaper rates when compared to high risk borrowers.
Considering the seriousness of the liquidity crisis and to make these instruments attractive to investors, Government has granted some financial instruments special features, such as prescribed asset status, tax exemptions and liquid asset status. The market has seen such institutions as Agribank and ZB Bank offer 360 day bonds in support of the financing of tobacco, livestock production and cropping season requirements to mention a few.
One of the key benefits of fixed-income instruments is low risk, that is, the relative safety of principal and a predictable rate of return (yield). If your risk tolerance level is low, fixed-income investments might suit your investment needs better. So investors who have low-risk appetite or not sure of investing in Zimbabwe can consider making their investments this way.
Returns from fixed-income instruments are predictable, that is, they offer a fixed rate of return. In comparison, returns from shares are uncertain.
If you need a certain predictable stream of income, fixed-income instruments are recommended.
Foreign investors do not need to be worried about the Indigenisation and Economic Empowerment Policy which is a few years old that requires holding 51 percent stake by locals in Zimbabwe.
This is because they can as well diversify their portfolios in different companies and also ensure security of investment by having reputable local partners.
Foreign investors need to think in other terms and avoid holding on to the traditional format of decision making rather than returns and risk diversification.
Diversification is the process of spreading the total investment money available across different asset classes and individual companies.
Diversification also entails choosing investments that are, as far as possible, uncorrelated, which means that when investment A is performing poorly, investment B is likely to be performing well.
A prudent investor diversifies their holdings in a diversified portfolio of assets; this includes looking at other sectors such as mining, tourism and agriculture.
The mining sector with abundant reserves of gold, platinum, coal, diamonds, nickel, iron ore, copper and coal-bed methane is attractive for foreign investors.
The sector is currently the largest and growing which is why investors should look into investing in Zimbabwe’s mining sector as a long-term commitment. It is clear that for investors, who think in other terms, a wealth of opportunities awaits for them in Zimbabwe.
Disclaimer: At GMRI Capital, we pride ourselves on the quality and depth of our research and analysis. This means digging deeper than our competition for information and generating more useful reports. This article is provided “as is” for informational purposes only, not intended for trading purposes or advice. Prior to execution of any security trade, you are advised to consult your authorised financial advisor to verify the accuracy of all information. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Contact: [email protected]: Facebook;http://www.facebook.com/GMRICAPITAL: Telephone: 0778409875; Offices: 23 Lawson Avenue, Milton Park, Harare.
Portia Mawire is a Financial Engineering student at the Harare Institute of Technology and also vice president of Financial Engineering Society (FES). She is currently attached at GMRI Capital.
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