Zim stock exchanges lose momentum

PHILLIMON MHLANGA

 

Zimbabwe’s two stock exchanges have lost steam in the past few weeks, as investors remain wary in the lead up to August 23 harmonised elections.

The Zimbabwe Stock Exchange (ZSE) and the Victoria Falls Stock Exchange (VFEX) have also been spooked by tight liquidity in the market.

Through the use of gold coins and the wholesale forex auction system, the government has been mopping excess liquidity from the market.

Gold coins have mopped up circa ZW$34 billion from the economy. The gold coins became a popular alternative investment option as they possess value preservation characteristics through the underlying asset, gold, that is, generally more stable and price movements that are pegged to the official exchange rate.

Consequently, the two stock exchanges- ZSE and VFEX have lost steam.

The value of stocks at the ZSE, which stood at ZWL$ZWL$15.3 trillion on June 19 declined to ZWL$11.38 trillion on Tuesday this week.

Although, the market capitalisation at VFEX advanced 127% between December and June 2023 to US$1.29m on the back of new listings, the value has fallen to US$1.25bn.

The benchmark VFEX All Shares Index also shed 26% in the year to July 7, 2023.

Securities firm, FBC Securities, said liquidity conditions in the economy continue to have a strong impact on market performance.

“Ahead of the 2023 general elections, we also expect a cautious sentiment to prevail among investors as they continue to assess the impact of the elections on business. Historically, election periods have been marred by economic volatility and bouts of violence, which may dampen investor confidence,” the firm said.

While elections have generally been characterised by increased money supply as election related government expenditure rises, the local economy is faced with a unique challenge as authorities continue to target inflation and exchange rate volatility through liquidity tightening measures, it said.

FBC Securities said loosening the grip in money supply might have a destabilising effect on the economy, increasing inflationary pressures and exchange rate volatility.

“The ZSE rallied for a number of weeks during the second quarter of the year, however, as liquidity tightened locally, market performance began to lose steam,” FBC Securities said.

It continued: “Rapid depreciation of the local currency, particularly towards the end of the first half, largely outpaced market performance.

“Concerns of value preservation against continuous depreciation of the local currency in a market where efficient hedging assets are limited remain topical.”

This, FBC Securities said, has seen growing interest in alternative asset classes, as opposed to the stock market, in a bid to preserve value.

“The ZSE’s performance has largely lagged behind inflation and exchange rate trends as liquidity constraints restrict share price performance. This however creates an opportunity for investors to accumulate quality stocks at discounted prices as the bourse houses a number of fundamentally sound investment options.

“We expect liquidity dynamics and value preservation concerns to remain key themes going into the second half of the year.

Presented with continuous currency devaluation and prevailing uncertainty ahead of elections, we maintain the view that investors should boost the resilience of their equity portfolios by focusing on a combination of high quality counters and consistent dividend payers.”

It said performance on the VFEX has remained largely subdued in the first half of the year, with selling pressure generally prevalent.

“The market is likely to remain highly susceptible to local economic developments, including policy intervention, that may affect liquidity conditions and business performance.

“Despite the growing trend of dollarisation locally, with estimates of the economy being over 80% dollarised, the VFEX remains dominated by sellers.

We anticipate investors will remain cautious moving into elections and the second half of the year, which may increase selling pressure and limit the amount of foreign currency directed to the US$ denominated bourse.”

An investment analyst, Fredrick Ndlovu told Business Times: “Due to the liquidity crisis, trading securities is becoming more challenging. Additionally, because of the impending election, investors have become wary. It’s a wait and see game now.”

 

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