EBEN MABUNDA THE Zimbabwe Stock Exchange opened the month of April, and a new quarter, on a positive note after gaining 1,51% to close at a new record high of 16098.23 points.
This followed an unstable first quarter, which was characterised by intense uncertainty as market fundamentals remained shaky.
Aggregate turnover rose by 3% in the March to ZW$8,188,877,299 (US$57 million), which is therefore the highest record in the quarter.
Total turnover rose by 99% in February due to a sharp growth in overall stock prices. Year-to-date (as at April 4) gains scaled up to 49,55%, while on a month-to-date basis the bourse closed at 2,06%.
According to Tinashe W Dumah, an Equities Analyst for Equity Axis:“The growth in turnover in the month was highly skewed towards market heavies as seen by a -23% decline in volumes, which translates to fewer shares trading at a higher price as opposed to penny stocks which are usually low-priced”.
In the first quarter of the year, foreigners emerged net sellers with net sales coming in at ZW$322 million (US$2,3 million) over the period.
The recent sell-offs by foreign investors have been a factor of uncertainty ahead of the 2023 elections.
The bourse opened the year on a continued upsurge that was stimulated by rampant inflation from 2020-2021. However, with the slow-down in inflation, stocks growth simultaneously slowed down.
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The current see-saw movement on the bourse is therefore largely a price-correction trend.
On the other hand, an upside is still imminent following a rapid depreciation of the local currency on both the formal and informal currency markets.
With a market cap of ZW$2 trillion (US$14 billion) on Tuesday the 5th of April, the market is expected to have a run for the rest of the year on the back of weakening economic fundamentals.
The central bank took a dovish stance on Monday April 4 raising interest rates to 80% from the previous 60% to register one of the highest interest rates in the world, among other measures.
While this is meant to curb speculative activities in the economy, this impinges on the productive sectors, threatening the country’s economic growth prospects.
The RBZalso moved to further liberalisethe foreign exchange market by allowing banks to make forex transactions of up to US$1000 with entities.
The recent monetary policy pronouncements will likely slow down the depreciation of the local currency in the interim. However, the local black market is largely steered by transactional movements that do not include nostro balances, often occurring beyond the formal system.
On the formal currency market, the ZWL sustained its trajectory and magnitude at the close of the auction trading for last week, on depreciating by -3,06%, from -3,07% in the prior week, to close at ZW$142,4237 per US$1.
The exchange rate has been growing at an increasing pace despite the efforts by the Central Bank to tame money supply, an indication of excess demand for the greenback in the economy. On the parallel market, the exchange rate has started to escalate as demand surges.
Zimbabwe’s headline inflation stood at 72,70% as at March 2022, a 6,59% increase from the prior month’s 66,11% and an indication of an accelerated rate of price increases.
Notably, both headline and monthly outturns fall outside national target ranges of 25%-35% and below 3% (despite decreases in month on month inflation) respectively.
As such, despite a relatively slow start, the market will likely move north of 250% for 2022, having registered a 311% increase in the ZSE ASI in 2021.
This is premised on the likelihood of a sustained growth in money supply, a continued weakening of the Zimdollar and a slowdown in GDP growth, triggering hedge seeking on the ZSE.
- Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — [email protected]
