Turmoil has engulfed the lacklustre Zimbabwe Stock Exchange (ZSE) with investors losing about ZWL$1.3 trillion in the past two months, sparked by renewed worries about a gloomy economic outlook.
The value of stocks, particularly the heavies or the blue chip counters, dramatically plunged into a bear market territory to ZWL$2.3 trillion this week from an all-time high of ZWL$3.6 trillion two months ago, meaning the ZSE, a once go-to-destination for companies seeking cheap funding, is now fragile with equity exposure, which have been a preferred asset class, now clearly in an underweight position.
The situation has left investors now poorer than they were two months ago.
This is bad news for investors seeking to park their money on the ZSE long-term.
This has resulted in a crisis on the equities market where investor sentiment has been hit by volatile economic situation, and declining corporate earnings.
Investment analysts told Business Times this week that the bearish trend is likely to continue.
In addition, subdued trading, disinvestment by mainly foreign investors and weak local investment, also led to value erosion on the ZSE.
The analysts believe the tumble is a result of poor and inconsistent government-imposed policies as the administration attempts to cool inflation, which has rocketed to 192% in the month of June from 132% in May, eroding confidence in the market.
Renowned international economist, Steve Hanke, a professor at Johns Hopkins University in the United States of America, who tracks Zimbabwe’s inflation, this week said the unrelenting inflation rate stood at 426%.
The bears are showing no signs of easing as the stock market is expected to slip further before year-end.
“It (tumble) is likely to continue up to the end of the year. Poor government policies and unrelenting inflation are the giants threatening to derail the stock exchange. A strong inflation sprint will cause more market consternation,” an investment analyst told Business Times this week.
Another investment analyst with a local bank told Business Times: “It’s [plunge] certainly going to be months of turmoil, which could trigger massive sell-offs.”
Apparently, foreign investors continue to sell off their stock following erosion of value.
They also appear to be sceptical that President Emmerson Mnangagwa’s administration can avoid a bruising economic downturn, following sharp interest rate hikes, put in place last week to curb speculative borrowing. The Reserve Bank of Zimbabwe’s monetary policy committee, last week increased interest rates to 200% from 80%.
The stock market, which has lost its glitter, had 79 counters at the beginning of 2010.
But, today, ZSE has 56 counters after several companies collapsed or opted to delist owing to financial challenges. Some of the companies that exited ZSE in the past few years included Interfresh, Radar Holdings, Trust Holdings, Pelhams, Steelnet, Cairns, Lifestyle Holdings, Interfin, Phoenix Consolidated, Apex and Chemco Holdings, among others.
Few companies, however, listed on ZSE in the past few years including Proplastics, Getbucks and Axia. Proplastics and Axia listed through a dividend-in-specie following their unbundling from Masimba Holdings and Innscor Africa Holdings respectively while GetBucks listed through an initial public offer. Tanganda returned to ZSE early this year after 14 years.
Of these listed entities, 50 are today active. However, less than 15 companies are trading positively with the rest in the red, meaning investors are losing money as the stock prices tumble due to Zimbabwe’s worsening economic conditions.
The balance—Hwange Colliery Limited, Old Mutual Zimbabwe, PPC, Cottco Holdings, CFI Holdings and Border Timbers Limited—are suspended.
The stock market tumble, multiple analysts said, is a reflection of the ailing economy, leading to the erosion of the local bourse’ value.
Despite the glaring adverse impact of interest rate hikes and poor policies, the government insists its measures to tame inflation will result in a soft landing.