WHILE leading financial markets across the world have been crashing, the Zimbabwe Stock Exchange (ZSE) has been posting record gains as investors turn to equities to protect their money from the countryâ€™s hyperinflation.
The industrial index gained a record 18 624,19% inside one week from 4 261 321 471,63 points last Wednesday to 797 897 986 622,52 during the same period this week, while the mining index traded in the same direction gaining 11 928,88% from 5 729 786 674,20 points to 689 229 248 588,47 points during the same period.
During the period under review, major movers where Halogen which gained a massive 1 063 729% from $141 000 per share to $1,5 billion. ZimpapersÂ rose by 71 328%. Turnall 61 438%, Dairibord and Interfresh both gained 49 900%.
Counters which breached the billion include RioZim which closed at $10,2 billion on Wednesday. Delta closed at $1,2 billion, Innscor $1,5 billion, Kingdom Miekles Africa Ltd $2 billion, Natfood $1 billion, Econet $6 billion and Bindura $2 billion. Pretoria Portland Cement CompanyÂ closed at $5 billion, TA HoldingsÂ $2 billion, Old Mutual $3 billion, British American TobaccoÂ $1,5 billon, Hwange $1,5 billion and Larfarge $1,5 billion.
The local bourse opened the week bullish as both the industrial and mining indices surged 240,37% and 205,59% respectively Monday.
The bullish trend maintained the upward trend recording even higher gains on Tuesday with the benchmark industrial indexÂ surging a hefty 257, 64% to close at 279 350 322 733,56 points.
The minings traded firmer increasing a massive 416,38% to settle at 436 925 6409 564,89 points.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
â€œWhy leave money in the bank?â€ asked ZSE chief executive Emmanuel Munyukwi. â€œPeople are forced to come on the stock market. They believe that after hard currency, the stock market is the only viable option where you can get a bit of a return,â€ he said.
Zimbabweâ€™s hyperinflationary environment has isolated the country from the rest of the world protecting it from the current financial turmoil.Â Munyukwi said it was the reason why the market was performing well.
However volumes being traded are very small and there was no real movement year on year. Stocks can be expensive today and be cheaper the next day.
â€œWe all know what has been happening to the world financial markets, yet the stock exchange in Zimbabwe is breaking all records. We are running short of superlatives to describe the performance of the market,â€ Munyukwi said.
The equities market this week grew some three times faster than consumer prices. This relative performance versus general prices was a result of stocks being a chief entry point for the flood of newly created money by internal electronic transfer.
In Zimbabwe it have been a case of keeping Zimbabwean dollars in the pocket for half a day will result to losing a significant amount of its value. Saving money in the bank, where interest rates are very low and a nightmare to withdraw is not a wise option for most people.
Investing in government bonds is the equivalent of financial suicide. Converting wealth into foreign currency is difficult because hard currency is scarce for many without cash generating businesses, and strict rules also limit exchangeability.
ZB group economist Best Doroh said the stock market was largely driven by investors trying to lock in value in an environment where there were very few investment options.
â€œTo a large extent, speculators have also taken advantage and invested on the stock market,â€ said Doroh.
Doroh said the stock market had discounted any negative effects arising out of the political events.
â€œThe stock market is the place to be. Outside of long-term investments in property and the â€œriskyâ€ investments in foreign currency, the stock market still remains the most lucrative avenue for investment,â€ Doroh said.
Â The stock market performance was also being driven by strong, cheap assets, which are offering returns that were more than matching inflation.
Although the market seem to be overvalued in Zimbabwean dollar terms it was undervalued in US dollars.
Zimbabwe Allied Banking Group, chief economist David Mupamhadzi said the stock market had provided investors with an alternative lucrative investment option given the depressed performance of other markets like the money market.
â€œA number of investors preferred to take refuge on the stock market because returns have been tracking inflation.Â With inflation continuing to hit all time highs most investors found the stock market to be a viable investment avenue, as returns on the money market remained in the negative territory,â€ said Mupamhadzi.
Apparently, money market rates are the only feasible instrument to cool overheating. Stocks remained depressed and the property market, the alternative investment vehicle, remained too expensive for broad participation.
For equities it is no-longer a case of fundamentals â€“â€“ depressed economy is normallyÂ mirrored by poor performance of the equities market and traditionally economists have learnâ€™t to measureÂ the healthÂ of an economy by looking at its stocks.
But the economy remains in freefall, with gross domestic product expected to contract further on what is the ninth year of a recession.
Yet the equities market remains northwards bound. Negative returns on the money market as well as escalating inflation have given impetus to the charging bulls.
Market analysts said it was unlikely that money market rates will rise to attract hot funds seeking shelter on the equities market.
The government is failing to restructure its costly domestic debt, the bulk of which constitutes interest on expensive treasury bills, and would not want rates to move higher than current levels.
The market is currently awash with cash, with a liquidity surplus into the equities market. There are very few or no investment products to force hot funds out of the equities market at present.
By Paul NyakazeyaÂ