Omega Ukama 
IN A year many thought would see a return to “normalcy” on the Zimbabwe Stock Exchange (ZSE), indiscriminate hedging continued on the local bourse, as inflation remained high.
The stock market, which has rallied on inflation for over half a decade, gained more than 270 percent in 2021, as the country’s inflation maintained a top-three global ranking throughout the year — in the company of Venezuela and South Sudan.
ZSE chief executive, Justin Bgoni
Zimbabwe’s inflation fell from 838 percent to 349 percent between July and December last year under the Reserve Bank of Zimbabwe’s strict monetary targeting framework. This got some analysts talking about a “return to normalcy” in 2021.
But as inflation continued to decline – reaching 50 percent in July 2021 – the ZSE All Share Index climbed on, gaining more than 150 percent during the seven-month period.
This was despite warnings from analysts that the market was getting overvalued.
Analysts at First Mutual Wealth said despite the generally improved fundamental performance of listed companies as indicated from the first cycle of published results in 2021, “a number of ZSE- listed companies, particularly in the small and medium cap segment, may now be overvalued”.
Fincent Securities also chimed in: “including the heavily capitalised ones” are now trading at a premium to the net asset values.”
“One would ask what has changed to justify such lofty valuations. Is 2021 is any better than 2013? Certainly not. The period 2009-2013 remains one of the best years marked by real growth, massive capital investment and general optimism.
“What we are experiencing right now is arguably closer to what happened in 2008 where investors that flocked to the stock exchange sought to preserve value for their earnings not caring much about the fundamentals of the businesses that they are investing in,” the equities firm said in a note in July.
A market correction came in August, with the local bourse shedding three percent, but this was to be short-lived as the market gained 29 percent in September after inflation increased for the first time since January, driven by foreign currency disbursement delays on the central bank’s auction system.
Inflation rose to 52 percent in September, as the ZSE put on $203 billion to end the month at a record $1,04 trillion.
“The escalating trajectory has been fuelled by value chasing as the premium between formal and parallel currency markets worsen,” Equity Axis said in a note then.
“The premium between the formal currency market and the parallel market is now almost 100 percent as the magnitude of loss on the formal market widens further,” the research firm added. On the official market, the ZWL had also depreciated for 22 consecutive weeks.
Inflation continued to rise, climbing to 54 percent in October, and again to 58,4 percent in November. The ZSE gained $338 billion in October to reach a record $1,38 trillion market capitalisation as the resurgent inflationary pressures drove demand for equities.
“The escalating trajectory has been fuelled by value chasing as the premium between the formal and parallel currency markets worsens,” Equity Axis said then.
“The premium between the formal currency market and the parallel market is now almost 100 percent as the magnitude of loss on the formal market widens further,” the research firm said.
On the official market, the ZWL also continued to depreciate, extending a 25-week loss.
Still, analysts continued to warn against arbitrary inflation hedging on the ZSE, insisting that stocks were overvalued.
“We caution against prescriptively applying historical performance to future expectations. The current run on the parallel market is not being accompanied by the same level of growth in inflation figures and it is happening in the presence of increased production unlike in the past,” IH Securities (IH) said in a note.
“Now is not the time to indiscriminately invest in any stock with the expectation they will all rise in response to inflation. The majority of stocks are in a bubble,” the equities and research firm added.
The market lost about $60 billion in November, with analysts saying investors were taking profits from the rally in October.
The market capitalisation dropped to $1,32 trillion after the All Share Index shed 6,96 percent to close at 10 695,57 points.
“In November, the market saw a decline owing to profit-taking and the onset of the festive period,” FBC Securities’ Enock Rukarwa told The Financial Gazette.
“Generally, activity tends to be low in December. In the retail segment, profit-taking turns out to be prominent as investors’ short stock market positions to widen their discretionary income ahead of the holidays. Cumulatively we project a flat to bearish outcome in December,” Rukarwa said.
The losses have continued this month, extending by about eight percent.
Meanwhile, the US$-denominated exchange launched last October – the Victoria Falls Stock Exchange – continues to threaten the relevance of the ZSE with two companies having moved to the budding market this year.
Padenga Holdings, a crocodile skins processor-cum-miner, migrated to the new exchange in July to improve its ability to raise capital in foreign currency.
Another exporter, Bindura Nickel Corporation, is expected to list on the US$-denominated market on December 31, 2021, after shareholders approved the migration last week.
