Amid a zero inflation and a relatively stable exchange rate, the ZSE posted an impressive performance, attracting more activity and trades.
The mainstream ZSE All Share Index garnered a 27.3% growth in June in nominal terms, which translates to 23.7% in US$ terms while the VFEX All Share Index surged by a staggering 5.6%. Meanwhile, the ZiG pared by -2.8% against the US$ in the month under review while month-on-month inflation for ZiG was zero.
The Zimbabwe Stock Exchange (ZSE) adopted the Zimbabwe Gold (ZiG) in April after the ZWL was demonetized. The Central Bank enforced a contractionary monetary policy stance in a bid to stabilize the exchange rate, and this led to reduced activity on the ZSE in the first few weeks before payment of contractors by the government, which mildly relaxed the monetary policy.
Following improved liquidity, an aggregate of ZiG99.8 million worth of shares exchanged hands on ZSE in June, 47% up from ZiG67,8 million traded in May.
On the downside, net foreign trades remain negative, with foreign inflows coming in at ZiG15.2 million while outflows closed at ZiG34.1 million.
Following the delisting of Edgars from the bourse after it migrated to VFEX, the ZSE substantially regained a significant market capitalization in June as improved demand for stocks led to a sharp increase in prices.
The ZSE registered a 29% jump in market cap in June to a 3-month high of US$2.63 billion, buttressing the 2% registered in the prior month.
The US$ denominated bourse, Victoria Falls Exchange (VFEX), which was not affected by the changes in local currency, saw a 6% increase in market capitalization to a 5-month high of US$1.23 billion as prices shot up. However, an aggregate of US$3.49 million exchanged hands on VFEX in June, -13% down from US$3.99 recorded in May.
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The Central Bank’s tight money supply stance curtailed inflation and exchange rate movement during the month, particularly on the parallel market. Resultantly, inflation closed at zero for June according to ZIMSTAT. Meanwhile, the government went on to pay off contractors in local currency, notably fueling money supply expansion.
In the period under review, the government cracked down on parallel money changers, thus significantly stifling parallel exchange activities, which left most people with limited options for value preservation from policy uncertainty. This ignited a bull-run on ZSE as investors sought safe haven from the uncertain future. Additionally, the capital gains tax on ZSE of 4% for stocks liquidated within 180-days was scrapped, while the traditional capital gains tax was reduced. This fueled demand from avid investors. The VFEX, on the other hand, also gained more liquidity from the added listing of Edgars, as well as improved morale after an official announcement to turn the bourse into a pun-African hub, which will see African commodities and minerals being traded. These changes led to improved demand on both the ZSE and VFEX.
Going forward, prospects on the ZSE and VFEX will heavily rely on policy stability, particularly on the monetary side. This is because the sustained exchange rate stability on both the formal and informal markets has boosted investor morale for positive returns in real terms in the short to medium-term. The sustained exchange rate stability has also aided in gradually regaining trust from the public in formal banking, hence increased foreign currency liquidity in savings in the banking sector, according to a banking survey. These savings are often channeled to other financial markets which include the stock market, hence a bullish performance on VFEX in June. Any controversial or policy inconsistency going forward will result in reversing the real-term positive growth on ZSE, and plunge the VFEX in a bear-run.
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- Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, Twitter: TWDuma_
