WHILE the country’s economy has crumbled, the Zimbabwean share speculator has been earning returns above inflation, keeping up much better than ordinary citizens.
Figures gathered by businessdigest this week show that the Zimbabwe Stock Exchange’s mainstream industrial index rose by a record two million percent between January 1 and June 30, while the resource index rose by 1,9 million percent during– the same period.
TA Holdings’ share gained the most during the period under review increasing 7,1 million percent during the six months, while Radar gained 6,6 million percent, Cafca – 6,2 million percent, CFI — 4,7 million percent and TSL 4,5 million percent.
The bottom five counters which gained the least are Halogen – 113 900%, Chemco – 178 471%, Zimplow – 222 122%, Zimnat – 239 900% and Medtech – 289 373%.
This jump in share prices was in excess of increases in consumer prices which averaged 1,2 million during the same period.
Events that stimulate Gross Domestic Product (GDP) – a country’s wealth, inevitably drives stock prices up, and any event that hurts GDP growth pulls stock prices down.
The opposite has however been happening in Zimbabwe: share prices are rising while the economy continues to collapse.
ZSE chief executive Emmanuel Munyuki, said the market performed “very well” although it was inflation-driven.
“The market was responding to rising inflation. The movement of share prices were inflation-driven during the first half of the year,” Munyuki told businessdigest.
Economic analysts said excess growth in money supply was giving a wrong impression to investors who use the stock exchange as a barometer for Zimbabwe’s economic performance.
The country has been suffering from catastrophic economic and political policies, largely blamed on President Robert Mugabe’s government. The only means for government to fund itself has been printing money.
The stock market has become a prime beneficiary of any monetary expansion. Fresh money enters the economy first through banks and other financial entities who may invest it in shares, or lend it to others who buy shares.
Thus stock prices rise above prices of food and other investment vehicles and will outperform them as long as this monetary process is allowed to continue.
“The stock market has provided investors with an alternative lucrative investment option given the depressed performance of other markets like the money market. A number of investors preferred to take refuge on the stock market because returns have been tracking inflation,” said Zimbabwe Allied Banking Group (ZABG) group economist David Mupamhadzi.
He said with inflation continuing to hit all time highs most investors found the stock market to be a viable investment avenue, as returns on the other investments remained in “negative territory”.
Trillions of dollars were made during the period under review as investors either leveraged the embarrassingly low interest rates or used their own funds to generate huge returns, which was not based on production growth.
ZB Financial Holdings group economist Best Doroh said the stock market was largely been driven by investors trying to lock in value in an environment where there were very few investment options.
“To a large extent, speculators have also taken advantage and invested on the stock market,” he said.
Economic analysts said with inflation currently at 9 030 000% keeping Zimbabwean dollars in the pocket will result in losing half of their value by the next day. Putting money in the bank, where rates are “not competitive”, and a maximum withdrawal limit enough to buy one loaf of bread was not wise.
Investing in government bonds is the equivalent of financial suicide. Converting the local currency into foreign currency is difficult, hard currency is scarce, and strict rules limit exchangeability.
There is little incentive at unit trusts and the money market since economic prospects look so bleak. Metropolitan Bank group economist Nyasha Mandeya said the stock market was driven by Asset Price Inflation, gloomy inflation outlook and negative real returns on the money market.
“The stock market was mainly subdued by political environment which presented uncertainty as to economic direction. The market was also buoyed by the conditions of excess liquidity emanating from concessionary funding facilities such as Aspef, Basic Commodities Supply Side Intervention (Bacossi), Farm Mechanisation and election related expenditures,” said Mandeya.
Businessdigest understand that new money being printed was not distributed to everyone equally and at the same time it was injected into the economy at certain initial “entry points”.
Some investors benefited from company earnings which skyrocketed in Zimbabwe dollars on the back of revaluation of assets as the local currency continues to lose internal and external value. Business was also taking advantage of any distortions that arose in the economy whether they constituted “core” business or not.
By Paul Nyakazeya