Zimbabwe Stock Exchange reacts firm to the coup




London — Look before you leap. Zimbabwe’s political shake-up isn’t exactly the first step on the road to investment.

A jump of 390% year-to-date in the benchmark Zimbabwe industrial index, which has a market capitalisation of $14.5bn and excludes mining companies, looks fabulous news for frontier funds invested in what used to be called Africa’s bread-basket.

It’s held on to those gains even as the military seizes power. It might be tempting to watch for a dip as a buying opportunity.

Zimbabwe’s year-to-date benchmark equity gain: 390%

The problem is getting your money out. After some serious hyperinflation, the country abandoned its own currency in favour of the US dollar in 2009, and it has become increasingly more difficult to extract capital.

Foreign investors have been trapped in their holdings for most of this year, unable to exit or cash in what look like huge profits. Stocks have become Zimbabwe’s version of bitcoin.

Meanwhile, bitcoin’s version of Zimbabwe seems to be having a good day.

It’s a similar picture for the MSCI Zimbabwe index, which has jumped 420% this year. The index consists of just two companies; a drinks conglomerate called Delta Corporation and Econet Wireless Zimbabwe.

There is a serious scarcity of cash, and bank deposits, in Zimbabwe’s broken economy. Equities are the only viable means of exchange, but this has pushed prices through the roof.

The country’s shares are trading at a 475% premium to cash, according to an Exotix analysis of Old Mutual data. That difference has to collapse for there to be any chance of Zimbabwe normalising.

Injections of new funds into the system should reduce the excessive equity valuations. But the International Monetary Fund, or any other foreign investor into specific companies or projects, will need to be certain that the economy and banking system can function before being able to help or inject capital.

That may be a long way off.

It is not certain that President Robert Mugabe will even be removed from his titular post — he remains revered within his country. This is not a grass-roots revolution but a succession plan aimed at preventing a dynastic handover to his wife.

Until Zimbabwe allows for the return of capital, only the very well-informed, or the very brave, should think about diving in.

• Ashworth is a Bloomberg Gadfly columnist covering European markets. This column does not necessarily reflect the opinion of Bloomberg and its owners.