WEDNESDAY, 22 FEBRUARY 2012 11:34 CHIKAVU NYIRENDA
Article from The Sunday Times
TBs back in action as investors shun bonds
The market understandably continues to experience a heavy liquidity over-hang with closing excess reserves of MK11.9 billion as at 17 February 2012, up from MK9.7 billion.
This position is likely to persist as these funds are a result of accumulations pending remittance of forex obligations. Attempts to mop up this liquidity by offering medium-term treasury notes have been futile as the funds would be required at short notice. In addition, current uncertainties on the direction of the economy do not inspire investors to lock-in their funds in medium term long-term paper even where the returns, in the region of 17 percent, are seemingly attractive.
The uptake on treasury notes is only K7.34 billion, out of the envisaged K30 billion, representing 24.46 percent of the required amount. Reserve Bank have noted the market's reluctance to go long and have re-introduced treasury bill auctions with effect from 21 February, 2012 to assist in funding government obligations.
Treasury bill auctions and the treasury bond programme will run concurrently as part of the process of restructuring government's domestic debt and developing a benchmark yield curve for the market. The next bond issue is due on 23 February, 2012 where a total of K22.66 billion is expected to be raised under various tenors.
The interbank weighted average rate fell from 8.20 percent, down from 8.53 percent the previous week.
Are official rates relevant?
According to official reports, the country's total forex holdings amounted to USD373 million as at 10 February 2012. Gross official reserves stood at US$216 million, representing 1.67 months import cover. In addition, the private sector held US$147 million in reserves but these are not internationally recognised as part of a country's import cover. The estimated monthly foreign exchange requirement is US$129 million.
Practically all major trading partner currencies inexplicably officially lost ground against the local unit, closing trades being at MK166.7330 (versus K168.1420) for US dollar (versus 22.1686) for the ZAR and K263.4382 (versus K265.9670) for the GBP. The market remains sceptical of these rates as very few are able to access foreign exchange at these levels, even "officially." Whilst the devaluation debate rages on, it tempting to say that unofficially the Malawi Kwacha has already been devalued but, perhaps, political expediency and ego do not allow for official communication to the nation. Meanwhile, the "poor masses" that are being supposedly shielded from devaluation are still feeling the effects of the "unofficial devaluation" as businesses pass on the premiums paid (including bribes!) for obtaining foreign exchange. The "poor masses" also continue to suffer as the stand-off between government, the IMF and bilateral partners prevents much needed donor-inflows for both recurrent and development expenditures. Are these positions really working in the interests of Malawi?
Trading remains muted
The Malawi All Share Index (MASI) remained static with a meagre turnover of K4.9 million from 18 deals for the week. Share prices closed at same levels as last week and the MASI recorded no change, closing at 5437.39. Shares traded include FMB, ILLOVO, NBM, NICO, NITL, StandardBank and OML.
Given the high liquidity in the money market (save for forex funds) and negative returns on the money market, the expectation was that the stock market would steadily pick up and become relatively vibrant. However, the Malawi market continues to defy observed norms in other markets and is failing to show direction.
We still believe that investors will return to the stock market as inflationary pressures arising from devaluation (official or unofficial!) give incentive to investors to move to assets that can keep value under these circumstances; stocks, real estate and real assets fall in this category.
Steps to financial freedom
One of the major objectives of many people in the world is to achieve personal financial freedom. However, many have no idea how to go about it and by the time they retire, they have barely enough resources to sustain a decent living. On reflection, the countless parties, beers, cigarettes, fancy clothes, "show-biz" trips and so many other money wasters rear their ugly heads to torture you and remind you of your spendthrift ways.
Those that remain frugal and down-to-earth in their lifestyles and appreciate the better things in life, like family and friends, tend to be more contented and happy with their choices – they learn and adopt the values of personal financial planning at an early age, applying the principles of finance in the management of personal and/or family income.
In order to be financially independent, there is need to consciously follow some basics. One major issue that you need to resolve is to identify your personal financial goals and then design a strategy to achieve these goals while being mindful of available investment alternatives. The financial planning process entails four simple processes viz:-
Assess your financial position
Have you ever wondered why companies spend so much money on strategic seminars and budgeting conferences? Well, the reason is simple. In order to move forward, an organisation needs to take stock of its position in many ways, prime being its financial position, now and in future. As an individual, you should also have at least one personal review session per annum (quarterly would be great!) where you can assess your net worth. One tool for achieving this is to use a Net Worth Statement. This involves listing all your assets against your liabilities; the difference between the two indicates your overall financial situation. It's more like a "Declaration of Assets and liabilities" to yourself!
Identify your financial goals
You need to set out your objectives based on your individual needs and expectations for the future. These include but are not limited to owning a home, accumulating a nest egg, building an educational fund for your children (especially university education) or to settle medical expenses. It is important to know yourself - your ambitions ideals and values. Doing a personal SWOT analysis is actually not a bad idea! Once you identify your financial goals, WRITE them down. The act of listing your goals and prioritizing these is a sign of commitment that reinforces your resolve to achieve them.
Make a plan to achieve these goals
Men, how many times have you been annoyed when your spouse approaches you to go shopping without a budget?! I am certain there are many out there; believe me, I sometimes practically tear my hair out just trying to make mine understand the value of a budget. And ladies, how annoying are it when your hubby just goes out and spends an unknown (usually large!) amount of money on a drinking spree with friends!! Don't you feel like wringing his neck the morning after!! You see, instinctively, we all value and appreciate the need to budget but, somehow, sadly not many of us do. A budget is a simple plan that enables you to identify your expenses from your income and to reduce your spending and debt levels in order to set aside money to meet your goals. Going back to the company example, practically none operates without a budget. And we all know this and yet on a personal level we are unable to implement it in our daily lives.
Implement your plan and start saving for your goals
I have always been fascinated with the saying that "The road to hell is paved with good intentions." Whilst not a specifically fitting proverb for this piece, it still invokes strong imagery in terms of how we may wish to do the right thing but end up doing the wrong things. In this case, having covered the first three steps, the acid test of your resolve is to implement your plan. Having identified your goals, you must decide between different savings and investment options, depending on the level of risk that you are willing to take and a realistic level of return that you would like to earn, as well as the length of time you want to invest your money. It is always a good idea to consult a financial advisor or investment manager to help you understand the different investment products and options that are available in Malawi.
And there you are! Try the above steps and see what a difference it can make to your fortune .Fortune favours the brave. And remember, "Failing to plan is planning to fail." Take charge of your financial destiny today.
Invest profitably!
Article from The Sunday Times
