ZiG stability drives bullish investor sentiment on ZSE

THE stability that has characterised the domestic economy since the introduction of the new currency, Zimbabwe Gold (ZiG), has had positive impact on investor sentiment, driving significant gains in listed stocks.

This renewed optimism has reflected in the solid performance of the Zimbabwe Stock Exchange (ZSE) and the Victoria Falls Stock Exchange (VFEX).

In July, the ZSE All Share Index experienced a notable nominal growth of 54 percent, which translates to a 53 percent increase in US dollar terms.

This growth builds on the 27,3 percent nominal return recorded in June, indicating sustained upward momentum.

Investors capitalised on low prices following the devaluation of portfolios during the hyperinflationary period of the Zimbabwean dollar era.

Also, the VFEX All Share Index saw a 2,2 percent rise in July, following a 5,6 percent increase in June.

Notably, the gains reflect the positive sentiment among investors, amid prolonged stability of the new currency since its introduction just over four months back.

The stability of the interbank exchange rate has been crucial in maintaining stable pricing in the formal market, contributing to a steady inflation rate, which has had a positive effect on the overall economy.

As a result, the banking sector has started to gain traction, reflecting increased confidence in the capital markets in the country.

Activity on the ZSE substantially improved to over pre-ZiG levels in July, with a total turnover traded in July coming in 173 percent higher than that registered in June.

However, the overall shares traded in July were 49 percent lower than in June, reflecting increased activity in market heavies compared to penny stocks.

The increased activity in penny stocks on VFEX shows improved positive investor morale in the medium term, as reflected by the total turnover for July reaching a one-year record high.

Despite the overall positive outcome, the ZSE was highly oscillatory in the later sessions of the month, fuelled by profit-taking-induced sell-offs following a bullish performance.

Foreign buys (inflows) slowed in July, while foreign outflows sharply rose, signalling a shift in foreign investor activity.

“The influx of ZiG liquidity has spurred a bull run on the ZSE, as investors capitalised on low prices following the devaluation of portfolios during the hyperinflationary period of the Zimbabwean dollar era. Similarly, the VFEX All Share Index saw a rise in July, following an increase in June. These gains reflect the positive sentiment among investors,” said Equity Axis in its weekly bulletin issued last week.

On the US dollar-denominated VFEX, the overall positive investor sentiment sustained a positive trajectory for a third consecutive month.

The notable increase in overall share prices resulted in a 0,7 percent growth in market capitalisation from US$1,25 billion to a 10-month high of US$1,26 billion.

The future of value preservation on the Zimbabwe Stock Exchange (ZSE) is intricately linked to the government’s approach to managing the widening exchange premium.

-herald