ZSE soars after stable currency fuels investor confidence

After starting the year sluggish, with single-digit gains in the first quarter significantly eroded by inflation and currency depreciation, the Zimbabwe Stock Exchange (ZSE) had a good run in the second quarter.

In the first quarter to March 2024, the ZSE All Share Index had gained 6,18 percent while the ZSE Top Ten Index had gained 6,8 percent.

However, these gains were just nominal with the year-on-year blended inflation at 55,3 percent while the then Zimbabwe dollar lost more than 90 percent of its value. This meant stocks on the ZSE had negative real returns.

The second quarter which coincided with the introduction of a new currency has, however, seen the ZSE return phenomenal gains. With both inflation and the exchange rate hardly moving during the period, the investors would not have asked for a better outturn.

The ZSE All Share Index closed the quarter to end of June up 28,64 percent while the Top 10 Index was even better with a gain of 35,92 percent. Leading the upsurge is insurance and property development stock Fidelity Life.

The counter, which is developing properties in Victoria Falls and Mazowe, closed the period under review up 141,4 percent to 105 ZiG cents. Afdis followed with a 108,86 percent gain while NTS, CBZ and Unifreight also put on 95.21 percent, 85,05 percent and 67,83 percent respectively.

Stockbroker and Director at IH Securities, Lloyd Mlotshwa, said the rally was influenced by movements in Delta and Econet, the two biggest stocks by market capitalisation. Mlotshwa said the mass migration to VFEX left only Delta and Econet as the only large and liquid names on the market “which means ZIG liquidity is predominantly channelled into them” most of the times.

“Both names are significantly up in real terms regardless of which rate you use since April/ZIG. Mathematically, that will push up your entire market capitalisation,” Mlotshwa said.

“I think that is at least one of the significant factors and will continue to be if there is no real market depth.”

Financial analyst, Sylvester Mupanduki, said the current run is a result of both institutional and retail investors starting to gain some confidence in the stock market “because of the stability brought by the introduction of a new stable currency that has reduced inflation rates”.

“Over the last two years, the stock market, especially the ZSE, has not been great for investors because of high annual inflation and currency uncertainties. Hyperinflation is not good for equity investments because it destroys value. Now that inflation is under control, we should see more interest from investors in stocks and that is what l think is currently driving the market,” Mupanduki said.

As an analyst, Mupanduki said the stability in the economy has made his work “quite exciting because now we can forecast company cash flows with a certain degree of precision, something that was nearly impossible during hyperinflation”.

“Lastly, with a stronger and stable underlying currency, ZSE stocks are now priced based on fundamentals rather than inflation. This clarity allows investors to clearly identify undervalued opportunities and l think that also attracts more interest,” said Mupanduki.

He believes that this market correction, driven by a stronger ZiG currency, has left the market undervalued.

“My recent valuations are showing me that most companies that l thought were overvalued last year are now trading at a meaningful discount, which could be attracting more investor interest.”

Mupanduki’s sentiments were shared by another market player, Tatenda Nemaungwe.

According to Nemaungwe, shares on the ZSE are generally undervalued compared to their regional counterparts.

“The market is also grossly undervalued if we compare it in today’s terms Vs 15 years ago when we had a GNU (Government of National Unit).

“In my view what caused the bull run from April to date is that of existing shareholder’s perception.

When one holds stake, they get to a point where they decide to preserve shares as opposed to throwing them on the open market at grossly low prices.

“This hold back starves supply and thus a bull run becomes imminent up until stocks are properly priced” Nemaungwe said. His views were corroborated by a stockbroker who spoke of the record and said the market has very few sellers at the moment.

“Volumes are not widespread, we’ve seen a few special deals.” Post the end of the second quarter, the ZSE has remained bullish and closed Wednesday up 43.32 percent since the 8th of April, the first day of trading under ZiG.-ebusinessweely