The Zimbabwe Stock Exchange reached unprecedented levels on yesterday with the overall market capitalisation closing the day at $112,1 billion.
The ZSE has been a standout performer even in US Dollar terms. The $112 billion market cap puts its value at US$4,48 billion using the official exchange rate pegged at 25.
Using a parallel market rate of 60, the market value will come down to US$1,86 billion, which is still higher than the January 2 value of US$1,17 billion using December 31, 2019 parallel market rates.
The equities market has been on an upward trajectory for the better part of the year, but the gains have been more pronounced during the month of May where the overall market value has put on significant gains.
At the end of April, the ZSE was valued at $62 billion, but has since put on 80,6 percent to current levels.
The market’s rally comes at a time most economic fundamentals are pointing southwards with reporting listed entities showing serious strain.
The historical results that are being released are showing marked decline in sales volumes with Delta for example showing a 42 percent sales volume drop for the full year to end of March 2020.
At Edgars Stores Limited unit sales at the Edgars Chain were down 21 percent compared to 2019. It was same story at the Jet Chain where unit sales were down 10 percent compared to 2019.
At Proplastics, demand for the Group’s products remained subdued in the first quarter of the year, as was the case for the greater part of last year.
All this performance speaks to a constrained consumer, with limited disposable incomes a situation that could worsen during and post coronavirus pandemic.
But with micro and company specific fundamentals negative, investors have still flocked to the Zimbabwe Stock Exchange pushing the ZSE to the current all-time high levels.
Apart from the associated capital gains and dividends, stocks also act as a hedge against inflation and the current environment, where inflation for March 2020 was 676 percent, makes the stock market attractive. Zimbabwe capital markets are also shallow and not well developed, making the easy to access stock market the favoured destination.
Money market instruments such as treasury bills with yields between 14 and 16 percent are unattractive as they yield negative returns in an inflationary environment.
The property market already facing it’s on challenges of increased voids and low rental yields is also priced out for many as sellers require foreign currency.
Batanai Matsika, Head of Research at Morgan & Co said while there is lot of new money coming in, there is also an element of “rerating of stocks in line with the exchange rate.”
“I think the movement in parallel market rates has triggered high inflation expectations.
“Investors looking to preserve value are parking Zimbabwe dollar balances in stocks,” said Mr Matsika.