FBC Securities is expecting the stock market’s performance to continue to be impacted by local liquidity conditions and value preservation concerns, given existing currency dynamics.
This comes as experts have warned that a lack of clarity around the government’s de-dollarisation roadmap risks damaging confidence in the Zimdollar, when the local unit is adopted as the country’s sole trading currency.
“Market activity has remained depressed in the current year, hampered by tight liquidity and confidence issues that continue to affect investor sentiment.
“While market capitalisation has advanced 383 percent year-to-date in Z$ terms, in US$ terms, the market cap is down 37 percent between December 2022 and September 2023,” FBC Securities said in a recent note.
This is premium content. Subscribe to read article.
“Despite a widespread dollarisation trend, activity on the Victoria Falls Stock Exchange remains largely subdued as a result of continuing confidence issues, growing preference for alternative investment options among local investors and low participation from foreigners.”
FBC Securities highlighted that it is expecting the appetite for alternative investments to continue to grow as investors continually assess local economic conditions.
Meanwhile, the research firm is anticipating that the focus will likely be on the future of the country’s currency going into the fourth quarter.
The research firm said a mix of measures to increase the supply of foreign currency, while simultaneously reducing demand for the US$ and increasing demand for local currency would alleviate pressure on the local currency.
“The US dollar remains a dominant feature in the local economic space as the dollarisation trend continues. Currently, foreign currency-denominated loans constitute circa 90 percent of total bank loans, while over 80 percent of local transactions are in US dollars,” read the report.
“Promoting wider use of the local currency has been challenging as economic agents continue to favour the US dollar for transacting and value preservation.
“While exchange rate stability has been achieved to an extent and official inflation figures continue to trend downward, confidence in the local currency remains low due to past experiences of volatility and value loss.”
Zimbabwe is currently using the multi-currency regime, which is expected to last until 2025, at the earliest.
newsdesk@fingaz.coSubscribe to The Financial Gazette