ZSE turnover reaches 8-month high

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Turnover on the Zimbabwe Stock Exchange reached an eight-month high of $360,1 million in February 2020, the highest recorded on the bourse post the country’s return to a mono-currency regime in June last year. The February figure, beat the previous high of $305,1 million recorded in January 2020.

While the January and February money supply figures are yet to be released, the trend in 2019 showed unprecedented growth in broad money supply, which reached $34,5 billion by end of December 2019, up 245 percent from $10 billion in 2020.

The Reserve Bank of Zimbabwe attributed this growth to subsidies on fuel, electricity, grain and other essentials, “particularly in the first half of 2019” although the figures provided showed even higher growth in the second half of the year.

Reserve money grew from $3 billion in June 2019 to just below $6 billion by end of September before leaping again to $8,8 billion by end of year 2019.

The growth in money supply, blamed for the country’s high inflation as well as the weakening exchange rate, prompted Government to adopt a tight monetary stance targeted at achieving reserve money growth of 10-15 percent by end of 2020, while money supply annual growth is targeted at levels of around 60 percent by end 2020.

It would be interesting whether this target will be achieved, given that last year, set targets were missed by a wide margin. Reserve money, which had a target of growing by 10 percent, grew by 160 percent while broad money supply grew by 250 percent.

The increased investment can, however, also mean growing appetite for stocks as a hedge against high inflation. Inflation in the country remained elevated for the better part of last year, reaching a month-on-month high of 39,3 percent in June last year, before slowing down to 2,2 percent as at January this year.

On a year-on-year basis, inflation reached an unofficial high of 521 percent in December 2019 before slowing down to 473,4 percent in January. This, market watchers say, forced investors to look for assets that preserve value such as listed stocks.

Other investment options such as the money market are yielding negative returns as the interest rates on offer are below inflation. This includes Treasury Bills, which currently have yield rates around an average 17 percent.

Performance in the real sector continues to be depressed owing to perceived uncertainties related to currency changes and currency instability. Resultantly, most sellers are withholding their property as a precautionary measure leaving the stock market as only liquid option.

Buying into stocks could also be a realisation by investors that local listed entities are undervalued after recording negative returns last year thereby weighing down investment appetite.

At the close of 2019, the ZSE had a market cap of roughly US$1,8 billion using the interbank market exchange rate while the market value was US$1,17 billion using parallel market rates. The ZSE last had a market capitalisation below US$2 billion just after the start of dollarisation in March 2009.

While some US dollar based company valuations could be, indeed, lower than those between 2009 and end of 2019, the companies that make up the biggest chunk of ZSE’s weight cannot be carrying a value less than US$2 billion given the investments that some of them made during the period under review. Delta for example, have seen their sales volumes fall drastically, at the end of December 2019, they still had an asset base that was more than their market valuation in US$ terms.

At the end of February, the ZSE had a market capitalisation $60,9 billion or US$3,4 billion below its nine-year average. Between 2009 and 2017, the ZSE market capitalisation averaged US$4,2 billion.

By the close of February, the ZSE All Share Index had gained 108,59 percent while the Top 10 index had gained 101,08 percent. — Business Weekly.