ZSE surges as Zim dollar plunges

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THE Zimbabwe Stock Exchange (ZSE) has gained more than $10 billion in the past two weeks, as investors react to dramatic movements in the parallel market exchange rate.
The Zimbabwe dollar has slumped from about 1:13 to the US dollar to trade at 1:20-plus over the period.
“The gains follow a growing risk aversion movement from more unhedged investments in the light of forex market carnage,” local advisory firm Equity Axis said last week.
“Investors are again returning to equities as safe haven with bias mainly anchored on stocks with an export orientation.
“The consolidation in stocks came after Zimstat released inflation numbers for the month of August which showed that annual inflation came in at 288,62 percent from 230,41 percent in July.
“Even though Zimstat has stopped publication of annual inflation, the statistics can be derived from the monthly data,” the research firm said.
It also comes as the market, has in the recent past, rallied on inflation. The market, which had shed over 75 percent after the reintroduction of the Zimbabwean dollar on June 24 closed on Wednesday with capitalisation of $32 billion.
Meanwhile, in an apparent reaction to the developments in the parallel market, the central bank last week reportedly froze bank accounts held by four companies suspected of engaging in money-laundering activities and fuelling the foreign currency parallel market.
The reserve bank also refined its regulation of Bbureaux de change, placing a seven percent margin cap on the interbank “mid-rate”, as well as several other limitations including the strict requirements of traveling documents for individuals buying foreign currency.
The stock market had lost more than $9 billion between June 24 and September 9.
And, with the Zimbabwean dollar trading at 1:13-plus against the greenback on the official market, analysts had argued that the stock market’s capitalisation, which had dropped to $21, 14 billion (equivalent to less than US$2 billion), was its lowest in a decade.
They had been contending that the market was actually now “undervalued”.
“One fundamental observation that we have made is that stock prices have declined significantly in real terms and the market is looking ‘cheap’,” Morgan & Co said in a note recently.
“We have done a comprehensive analysis by comparing ZSE US dollar prices and 42 out of the 52 counters studied have declined in real terms This analysis confirms our view that ZSE stocks are undervalued and there is scope of a re-rating,” the equities firm said.

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