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Piggy’s Trading & Investing Tips: Fashion, inequality, inflation

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Batanai Matsika
PIGGY has observed with concern that the world is suffering from a dramatically uneven recovery.

In fact, research done by McKinsey & Company shows that inequality is worsening across country groups.

This speaks to the different recovery speeds and trajectories of higher-income and lower-income countries from the impacts of the Covid-19 pandemic.

This has further been exacerbated by the Russia-Ukraine war that is creating pricing pressures across different economies.

Within countries, some provinces and cities were impacted unevenly by the pandemic or saw economic gaps between them widen as a result.

Early discussions of “V-shaped” or “U-shaped” economic recoveries from the pandemic have largely given way to a “K-shaped” model, in which the wealthiest people saw a quicker economic recovery, and those at the lower end of the income spectrum saw their economic opportunities dwindle or stagnate.

This has happened in both developing and advanced economies.

Looking at the Zimbabwean context, the economic outlook remains highly uncertain.

More recently, the World Bank trimmed Zimbabwe’s growth forecast to 3,7% from 4,3% on the back of the impact of the Russia-Ukraine war and the Covid-19 pandemic.

The Bretton Woods Institution also expects growth to marginally slowdown in 2023 to 3,6%.

Meanwhile, the headline consumer price inflation accelerated to a 12-month high of 131,7% in May 2022 up from 96,4% recorded in April 2022.

This also marked the first time the annual inflation rate crossed back into the three-digit level since June 2021 as illustrated in the graph.

Another concern is that the cost of living for an individual per month, measured by the poverty datum line, accelerated by 23,6% to ZW$14 041 in May 2022.

Estimates from the World Bank also show that the number of extremely poor Zimbabweans reached 7,9 million — almost 49% of the population in 2020, up from 42% in 2019. In addition, inequality is on the rise.

According to the mini-PICES from Zimstat, the Gini index rose from 44,7% in 2017 to 50,4% in 2019. The richest 10% of the population consumes 40% of the total national consumption.

Since economic sectors with stronger resilience are likely to outperform others in 2022, business performance will vary across many of the consumer markets and operating hubs.

One interesting sector is the local fashion industry. Truworths, for example recently announced it will now focus on cash sales in the wake of rising inflation.

The new strategy will enable the business to reduce its exposure to credit sales.

The retailer’s revenue for the half year increased from ZW$221,5 million (US$654 376 at this week’s auction rate) to ZW$314 million (US$927 649) despite the effect of the 20% retentions on US dollar sales, which were liquidated at the auction rate.

That said, fashion trends are also shifting as more people return to the workplace and formal occasions are reinstated on social calendars.

It is envisaged that consumers will reinvigorate the formalwear business in the year ahead. Similarly, in footwear, consumers will look beyond the sneakers and comfy sandals that ruled lockdown-era shopping.

Overall, the major demand driver in the fashion and clothing space will be the level of disposable incomes.

Piggy also notes stiff competition from informal business operators that continue to threaten the viability of established clothing retailers like Truworths and Edgars.

Piggy has always maintained that the current economic setting requires investors to “put money where their mouth is”. It appears that food-oriented businesses like Innscor, Simbisa Brands, OK Zimbabwe and Meikles Limited are better stock picks for now.

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  • Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. — batanai@morganzim.com/ batanai@piggybankadvisor.com or mobile: +263 783 584 745.