ZSE in lackluster performance: Foreign investors desert ZSE
Foreign investors are continuing to sell off Zimbabwean stocks amid erosion of currency values as well as struggling entities.
The local bourse was one of the institutions in the region to be hit by a foreign currency drought following the shock abandonment of the multi-currency system in June this year.
After the decoupling of the greenback from the local currency, Zimbabwe witnessed a return of the interbank foreign exchange market in February 2019 with the opening exchange rate pegged at ZWL$2.5 per US$1.
Dollarisation had made Zimbabwe a safe haven for both local and foreign investors. But the policy shift, particularly the return of the Zimbabwe dollar and bottlenecks faced by foreign investors in repatriating dividends back home dealt a huge blow on the gains the ZSE had achieved.
In just seven months after since that policy change in February 2019, the Zimbabwe Stock Exchange (ZSE) Industrial Index has registered 57% gains to 774.55 points, with most counters rising on the back of the monetary changes.
Clearly investors were taking positions adopting a wait-and-see attitude. But in USD terms, the picture was less positive with the overall market value of the ZSE down 75% to US$1.98 billion
Just two years ago the ZSE was Africa’s top performing stock market in United States dollar terms for the first six months of 2017.
At the time Local investors were buying into the equities market as a hedge against currency uncertainties and shortages as most cash-rich Zimbabwean companies and individuals failed to access their cash locked in banks due to foreign currency shortages.
Hedging against economic upheavals seemed prudent then but as it stands, the exchange has become a club of a handful stocks that only determine the movement of the bourse but also the pace.
Looking closely at a five year period, comparing the current USD prices of the stocks we can conclude that most of the blue chip counters like Delta, Innscor and Econet are now trading below their 5-year lows that were predominantly witnessed in 2016.
The year 2019 was characterized by rising inflation, relatively tight fiscal measures with liquidity challenges, power outages and low capacity utilisation. These factors compounded to the unattractiveness of the local bourse and in our view, this trend is expected to continue into the New Year.
Notably, the ZSE advanced 57% in the period February 2019 to September 2019 but has not really brought a smile on investors as statistics showed that during the same period under review the bourse lagged behind both inflation and exchange rates. ZSE average monthly return is at 4% relative to 14% and 40% for inflation and exchange rates respectively
On the upside though, we foresee a rally as negotiations between President Emmerson Mnangagwa and opposition leader Nelson Chamisa take shape and probably usher in hope for a nation that was in despair throughout the year.