In­vestors are buy­ing blindly on thin vol­umes in search of in­fla­tion hedges


ZIM­BABWE’S wors­en­ing cash cri­sis and fears over the ero­sion of value of bank bal­ances has proved a boon for the lo­cal bourse as in­di­vid­ual and cor­po­rate in­vestors seek refuge there.

The Zim­babwe Stock Ex­change (ZSE) reached its high­est post-US dol­lar adop­tion, after cap­ping the month of Au­gust on the front foot as bulls con­tin­ued to drive the in­dices higher. With the pre­vi­ous high­est level set on Au­gust 1, 2013 – the day after Zim­babwe’s last gen­eral elec­tion – it looks like there is no end to the bourse’s record­set­ting per­for­mance.

The mar­ket cap­i­tal­i­sa­tion in­creased by 39% to close at $11.3 bil­lion from $8.12bn in the pre­vi­ous week, mir­ror­ing the gains in both in­dices.

To­tal mar­ket turnover rose nearly three­fold to $27.99 mil­lion from $10.64m recorded in the pre­vi­ous week.

Many in­vestors are buy­ing blindly on very thin vol­umes, a sit­u­a­tion an­a­lysts warned “is tech­ni­cally not sus­tain­able” amid con­cern that the mar­ket has now over­heated.

An­a­lysts say the de­mand for eq­ui­ties is driven mainly by the is­suance of trea­sury bills (TBs) into the mar­ket by gov­ern­ment, which is giv­ing rise to the cre­ation of phoney money in the econ­omy through real time gross set­tle­ment (RTGS).

Econ­o­mist Ngoni Mguni said the surge in eq­ui­ties is largely driven by lo­cal in­sti­tu­tional in­vestors seek­ing an in­fla­tion hedge that is pro­vided by eq­ui­ties or prop­erty.

“In­sti­tu­tional in­vestors who have ex­cess cash in banks are driv­ing the cur­rent ZSE bull run as they pre­fer eq­ui­ties to money mar­kets due to cur­rency risk fu­elled by the heav­ily dis­counted bond notes and RTGS bal­ances,” Mguni said.

Mon­e­tary de­vel­op­ments – in­creas­ing RTGS bal­ances rel­a­tive to US dol­lar cash and Nostro bal­ances, which have pushed up premi­ums on US dol­lar notes – con­tinue to drive in­fla­tion­ary ex­pec­ta­tions.

“The real rea­son is that we are an­tic­i­pat­ing a high in­fla­tion en­vi­ron­ment, so for you to pro­tect your­self, you need to hold real as­sets. That’s why there is now a de­mand for eq­ui­ties,” he said.

“The prob­lem with money mar­kets in­vest­ment is their re­turns will be chewed up by in­fla­tion, but with shares, in­vestors pre­serve value, and can be liq­ui­dated at a later date in the long run at a price which re­flects the in­fla­tion rate at that time.”

Said one in­vest­ment an­a­lyst: “Gov­ern­ment is pay­ing through trea­sury bills and is just cre­at­ing money through RTGs and that is one of the ma­jor fac­tors caus­ing the bull run on the mar­ket as in­vestors and cor­po­rates dis­pose of the big RTGS bal­ances they hold by buy­ing shares on the stock mar­ket.”

For­eign in­vestors, on the other hand, are in­ten­si­fy­ing their dis­posal of their shares on the lo­cal bourse as they re­main net sell­ers in the year.

De­spite the dif­fi­culty in re­mit­ting sale pro­ceeds, driven by Nostro pres­sures, for­eign in­vestors are opt­ing to sell and re­serve bet­ter po­si­tions in the re­mit­ting queue.

“For­eign­ers are con­sid­er­ing that even if they are to wait in the queue for months to re­ceive their pro­ceeds, they will even­tu­ally get paid in US dol­lars when their turn comes. There is also fear that the on­go­ing bull run might re­trace if the uncer­tainty driv­ing the mar­ket cools down,” an an­a­lyst said.

How­ever, the cen­tral bank has es­tab­lished a Zim­babwe Port­fo­lio In­vest­ment Fund to the tune of $5m, to fa­cil­i­tate the ef­fi­cient repa­tri­a­tion of port­fo­lio re­lated funds to for­eign in­vestors in­vested specif­i­cally on the ZSE, a de­vel­op­ment meant to re­store con­fi­dence in the mar­ket.

In June, the coun­try had a back­log of $75m in div­i­dends and pro­ceeds from sales that were owed to for­eign in­vestors.

In­ter­est­ingly, the de­mand for shares is not lim­ited to those du­ally listed on ei­ther the JSE or the Lon­don Stock Ex­change. Fun­gi­ble shares at­tract more in­vestors as one can dis­pose of the same shares in ei­ther Jo­han­nes­burg or Lon­don.

“But even penny stocks are be­ing grabbed in their mil­lions,” said an eq­ui­ties an­a­lyst who asked not to be named. Some an­a­lysts said cor­po­rates are now turn­ing to the stock mar­ket in or­der to hedge them­selves against the po­ten­tial risks as­so­ci­ated with sit­ting on top of ex­cess cash in banks.

Gone are the days when the com­mon sen­ti­ment was that Zim­bab­wean shares were un­der­val­ued.

“The ZSE is now over­val­ued de­spite the chal­lenges com­pa­nies are fac­ing, which in­clude for­eign pay­ment de­lays and wan­ing ag­gre­gate de­mand, just to men­tion a few,” said Mguni.

To date, the main­stream in­dex gained 176.96% to 400.05 points, driven mainly by the big­gest 10 stocks by mar­ket cap­i­tal­i­sa­tion which ac­count for 77.4% of the to­tal mar­ket cap­i­tal­i­sa­tion.

The min­ing in­dex has also picked up 56.32% in a year to date to 91.46 points, as de­mand for all min­ing com­pa­nies in­crease.

But in­stead of bring­ing cheer and cel­e­bra­tion, the bull­run is bring­ing fear, and an un­com­fort­able sense of déjà vu.

“In 2007, just like to­day, the ZSE be­came the world’s best per­form­ing mar­ket. Shares were up close to 600% by mid-year in 2007. Year-on-year, by April 2007, the stock mar­ket had risen a mas­sive 12 000%. We now know it was all a de­cep­tion; it was only go­ing up be­cause in­vestors had nowhere else to put their Zim­babwe dol­lars, whose worth was evap­o­rat­ing fast,” said Mguni.

“Un­less some­thing is done, and dif­fer­ently, so will the signs now in 2017 lead the econ­omy, and the pol­i­tics, into sim­i­lar trou­ble in 2018.”


OVER­HEATED: Mem­bers of the me­dia dis­cuss a screen at Zim­babwe’s Stock Ex­change in Harare. The main­stream in­dex has gained 176.96% to 400.05 points, driven mainly by the big­gest 10 stocks by mar­ket cap­i­tal­i­sa­tion.

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