Negative returns on investment at ZSE as inflationary pressures mount

Investors on the Zimbabwe Stock Exchange (ZSE) are likely to see negative returns on their investments in real terms as exchange rate volatility and inflationary pressures persist in the short to medium term.

According to market watchers, the rate of inflation is pacing faster than the price of equities on the market, which will put pressure on returns, according to analysts’ projections.

Already, total market capitalisation in June grew 56,69 percent in nominal terms during the month to $13,94 trillion but, in real terms, it witnessed a 25,83 percent decrease to close off at US$1,83 billion as the rate of depreciation outpaced the increase in liquidity.

Official figures show that the official rate on the auction surged by 235 percent to the dollar whilst interbank rate increased by 189 percent during the month of June as monetary authorities rapidly devalued the local currency to close a widening gap with the parallel rate.

The parallel market rate also inched up by 111 percent over the month of June.

These according to market watchers will continue to put pressure on margins although the market appears to be on a rally in Zimbabwean dollar terms.

“While fundamentals speak to a bullish stock market in 2023, the ZSE has become a reflection of ZWL money supply,” said research firm IH Securities.

“We are of the view we will continue to see strong correlation between money supply and ZSE stock market performance.

“Looking at current macroeconomic status, the exchange rate is moving faster than prices on the ZSE translating to negative real returns. We do not see this situation changing in the short-term,” said the research firm.

In terms of inflation, the month of June saw skyrocketing inflation figures on the back of a volatile local currency. The Zimbabwe National Statistics Agency (ZIMSTAT) revealed blended monthly inflation reached 74,5 percent in the month from 15,7 percent in the prior month.

The Consumer Price Index (CPI) was 566,36 in June, up from 324,63 in May. The CPI for food and non- alcoholic beverages had the highest month-on-month inflation rate of 104,16 percent followed by health at 82,27 percent. Year on year inflation consequently rose from 96,1 percent to 175,8 percent.

Inflationary pressures remain in the system as the local ZWL finds a new floor.

Meanwhile there was increased activity on the ZSE in June as excess liquidity in the economy contributed to uplift the bourse. Average daily value traded for the month of June grew from US$0,6 million to US$0,63 million. However, volumes declined 24 percent to 172,37 million.

“At a current market cap, the ZSE is still trading at a discount to the long-term average of US$4 billion.

“As such, the ZSE offers upside, trading at a deep discount to fair value despite fundamental growth in businesses over the past three years and themes of increasing corporate transactions,” said IH Securities.

Elsewhere, on the VFEX, activity started gaining momentum and part of it could be explained by increased dollarisation in the economy. Total value traded increased in June by 59 percent to US$3,04 million from US$1,91 million registered in May.

Total market capitalisation within the month decreased an aggregate 7,04 percent to US$1,28 billion as prices for listed counters continued to taper off.

Resources group Bindura was the top gainer in June increasing 53,85 percent month on month followed by Padenga which gained 0,59 percent within the period.

Overall performance was weighed down by heavy weight Innscor, which saw a 5,9 percent decline in the period whilst FCB was the worst performer losing 39,8 percent of value.

Average daily traded for the exchange in June registered at US$138,384 versus the US$91,170 recorded in May. On a one year rolling basis, the VFEX All Share Index has outperformed its peer and has provided the better store of value within the period. There, however remains selling pressure on the VFEX according to IH Securities.-chronicles