The Zimbabwe Stock Exchange is expected to continue on an upward trajectory in 2021 in spite of the headwinds currently bedevilling the economy, a leading local asset management firm has predicted.
The equities market, as represented by the ZSE, was the best performing asset in 2020, with the market capitalisation closing the year up 968 percent, at $317,9 billion up from $29 billion at the close in 2019.
In US dollar terms, the market, which was valued at US$1.77 billion using official exchange rate of 16.77 at the end of 2019, closed the year up 115,5 percent to US$3,88 billion using the end of December official exchange rate of $81,78.
The upward trend is expected to continue as the other investment classes are not expected to offer much in terms of return.
According to a research note by Imara Asset Management, monetary assets such as credit, bonds and bank deposits in local dollars will remain unattractive in 2021 “as has been the case for many years now.”
Imara attributed the unattractiveness of these asset classes to a loose monetary policy and the subsequent high inflation and a depreciating currency.
At the last count in December 2020, reserve money was more than $18,5 billion from an average $13 billion in the previous months.
This increased money supply coincided with a 66 percent gain in the stock market.
This is, however, in an environment where there are not many asset classes where cash rich investors can invest in.
“Which once again leaves the ZSE as one of the very few avenues where (the local currency) can buy hard assets,” Imara noted.
The asset management firm said surplus local currency looking for a home will more than likely outweigh the selling pressure from pension funds looking to liquidate their positions to meet pension pay outs.
Imara is also of the opinion that, the delisting of some counters, which it expects to continue in 2021, will leave a smaller pool of counters for investors to choose from.
2020 saw a number of counters, including Old Mutual, SeedCo International, PPC, and Powerspeed, leave the ZSE.
This will make the pool of available counters to buy that much smaller.
“A smaller pool of counters with excess (Zimbabwe dollars) in the system will see the ZSE continue to rise despite what remains an uncertain environment, very similar to the one that we experienced in 2020.”
“We would also expect to find corporates, especially exporters with surplus local currency, buying shares as a hedge against devaluation,” Imara reckons.
Local exporters are expected to surrender 40 percent of their earnings to the Reserve Bank of Zimbabwe in exchange for the local currency.
However, with most of the bigger expenditure such as electricity bills, wages, among others being paid in foreign currency, exporters are likely to be left with excess local dollars that might find their way to the stock market.
Meanwhile, the ZSE is already trading above its 2020 closing market capitalisation level of $317,9 billion.