ZSE highwave persists

THE Zimbabwe Stock Exchange (ZSE) is set for another record year in 2019 after kicking off the year with high activity.
Official ZSE data shows that value traded on the local bourse in January totalled $110 million — a 47 percent increase on activity recorded during the same period in 2018.
This comes as interest in stocks has surged in the wake of rising inflation over the past few months.
The country’s inflation, which had been subdued since dollarisation in 2009, came out of deflation in February 2017 after two and a half years. The consumer price index has since spiked to a post dollarisation high of 42,1 percent for December, 2018 from 0,1 percent in February, 2017.
Researchers at advisory firm, Equity Axis say the recent fuel price hikes and subsequent unrest also fanned into the flame of the market.
“Trading on the ZSE has generally remained firm in the aftermath of the stayaways. Violence and lawlessness succeeding the demonstrations has increased the risk premium on the country further worsened by low confidence in government and polarisation presently experienced,” Equity Axis said in a note recently.
“The period also coincided with the increases in fuel prices and although average price gains have not yet been as sharp and sporadic, investors appear to be cushioning their positions after pricing the risk of further monetary value erosion,” the advisory firm said.
In October last year, the ZSE reached its highest ever market capitalisation of $23,2 billion after opening the year at $9,6 billion. Value traded on the local bourse in 2018 also came in at a record high of $926,3 million.
This was after the rapid deterioration of the parallel market rates for bond notes and balances in the RTGS FCAs against major currencies, which was sparked by a central bank directive for banks to separate existing bank accounts into two categories, namely nostro FCAs and RTGS FCAs.
Even though this implicitly acknowledged that Zimbabwean bank balances and bond notes are not equal in value to actual US dollars, treasury and the monetary authority maintain that the bond note and RTGS FCAs balances are valued at 1:1 to the dollar.
These “policy gyrations” as they have been characterised by some analysts, have not helped the situation.
“Investors now feel monetary assets could be hammered more and that inflation may further increase tapping as well from movements in the exchange rate,” said Equity Axis.
Also, with the official inflation for December 2018 coming in at 16 percentage points above treasury’s projection of 26 percent, analysts have warned that prices of goods and services could continue to rise above the government’s expectations if the current monetary crisis is not dealt with.
Treasury sees inflation averaging 22,4 percent this year before closing the year at five percent.
Steve Hanke, an American professor of applied economics, says “as long as Zimbabwe continues to produce its own money, namely bond notes and RTGSs, it will continue to be in the grips of a monetary death spiral”.
Hanke said government should decommission bond notes and RTGSs but maintain a commitment to redeem these at par to the US dollar.
“The redemption at par would take place over a five year period. During this period, the government will redeem the bond notes and RTGSs by accepting them as payment for taxes or any other obligations,” Hanke said in an article published by Forbes recently.
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