Mishma Chakanyuka, Staff Writer 
FINANCIAL services firm IH Securities says it expects to see a continuous correlation between money supply and stock prices on the Zimbabwe Stock Exchange (ZSE).
Over the years, the market has been sensitive to inflation developments in the broader economy, as demand for value-preserving assets has persistently risen.
“We are of the view we will continue to see a strong correlation between money supply and ZSE stock market performance,” IH Securities said in its April 2023 Monthly Snapshot.
The central bank also said the annual growth in broad money of 269,62 percent was largely due to increases of 351,69 percent and 342,21 percent in credit to the private sector and net claims on government, respectively
“The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued.”
According to economic experts, a change in the money supply will affect stock prices only if the change in the money supply alters expectations about future monetary policy.
Zimbabwe’s broad money supply, which consists of domestic and foreign currency deposits, increased to $2,92 trillion in February 2023 from $2,69 trillion in January.
Broad money growth depreciated month over month in February 2023, from 15,36 percent in January to 8,56 percent in February.
“The growth largely reflected increases of $127,93 billion and $101,55 billion in foreign currency accounts (FCAs) and local currency deposits, respectively,” the central bank said.
Economists have been warning the government against creating money through expansionary spending.
Economist Eddie Cross said money supply was the primary factor in recent exchange rate volatility.
“The apex bank is printing money to buy foreign exchange and gold. Any increase in local currency, electronic or paper, will result in the devaluation of the local currency. Speculators benefit and contribute to the problem,” Cross told The Financial Gazette recently.
In April, the ZSE’s market capitalisation grew by 3,95 percent to $3,42 trillion.
Meanwhile, the Zimbabwe dollar lost about 34 percent against the greenback during the month. As a result, the performance of the bourse in real terms was diluted to a loss of 30 percent. The average daily value traded for April inched up from an equivalent of US$0,48 million in March to US$0,53 million whilst total volumes were reduced by 21 percent to 76,54 million.
At a current market cap of US$1,9 billion, the ZSE is still trading at a discount to the long-term average of US$4 billion.
“As such, the ZSE offers upside, trading at a deep discount to fair value despite fundamental growth in businesses over the past three years and themes of increasing corporate transactions,” the financial services firm said.
IH Securities said the Victoria Falls Stock Exchange (VFEX) continues to benefit from the pipeline of new entrants with the latest, African Sun, finalising its movement from the ZSE to the US dollar-denominated exchange on April 14.
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