Harare, Zimbabwe – Zimbabwe’s stock market is experiencing a sharp rise, but not for the usual reasons. Investors are flocking to equities as a hedge against the rapidly deteriorating Zimbabwe Gold (ZiG)-backed currency, which has been losing ground against the US dollar.
Since August 28, the Zimbabwe Stock Exchange’s (ZSE) All Share Index has surged by 28%, driven by the sharp decline of the ZiG on the parallel market. Remarkably, since the currency’s introduction in April, the index has skyrocketed by an astounding 160%.
However, this rapid rise is seen as more of a warning signal than cause for celebration. According to a report by Bloomberg, traders are interpreting the stock market’s meteoric growth as a reflection of deeper financial instability rather than genuine economic confidence.
Lloyd Mlotshwa, head of research at IH Securities, expressed concerns over the current market trend. “The stock market has largely mirrored movements in the parallel market and the influx of ZiG liquidity,” Mlotshwa said in the Bloomberg report, noting that the situation is reminiscent of “the same song on repeat.”
The ZiG, introduced in April 2023, was initially designed to stabilize Zimbabwe’s monetary system. However, it has failed to maintain its value. After debuting at an exchange rate of 13.56 per US dollar, the ZiG has plummeted to 26 per dollar on the parallel market, experiencing a 17-day losing streak—the longest since its launch. The official exchange rate remains relatively stable at 13.97 per dollar.
As inflation continues to surge and the currency loses value, Zimbabweans are increasingly turning to the stock market as a safer alternative. The rise in stock prices is viewed as a hedge against economic uncertainty, particularly in major companies like Econet Wireless Ltd. and Delta Corp Ltd., which dominate the local market.
Despite the central bank’s efforts to stabilize the currency—injecting $64 million into the market this month and cracking down on street traders who fuel black market currency exchanges—investors remain cautious. While stocks provide some protection, Mlotshwa warned that the core issues of currency volatility and economic instability remain unaddressed.
Zimbabwe is also grappling with other economic challenges, including a prolonged drought that has worsened food insecurity and disrupted key agricultural sectors like tobacco, a major source of US dollar inflows. Meanwhile, rising global gold prices offer a glimmer of hope for the nation, which is a major gold producer.
As the country navigates its currency crisis, the stock market surge offers temporary relief for investors, but underlying economic instability continues to loom. The long-term recovery will depend on addressing fundamental challenges, including inflation, currency depreciation, and agricultural output.