Foreigners desert ZSE
Faltering economic performance has resulted in foreign investors losing interest to invest on the Zimbabwe Stock Exchange, as both value and volume of shares traded by foreigners in the first quarter of 2020 declined compared to the same period last year, analysts have said.
While Finance and Economic Development Mthuli Ncube had forecast 3 percent rebound this year, he now sees more than double last year's projected shrink of 6,5 percent due to the negative impact of the coronavirus, which has shuttered global economies, wiped out millions of jobs, killed and infected millions of people.
“The volume of shares bought and sold by foreigners declined by 86,28 percent and 63,92 percent respectively,” Economic think tank the Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) noted in its 2020 first quarter report dubbed Economic Barometer Volume 21.
Current foreign investor apathy reflects trends that started earlier given foreign participation averaged 38 percent between 2009 and 2015 and reached a peak of around 60 percent in 2015.
ZSE chief executive Justin Bgoni told local media last year that by October 2019, foreign participation had dropped to 17 percent and “we believe this is largely locked funds which are being recycled for trading purposes”.
The volume of shares bought and sold by foreigners on the ZSE declined by 86,28 percent and 63,92 percent respectively, whilst the value of shares bought and sold by foreigners also declined by 67.03 percent and 15,66 percent respectively.
The ZSE’s market capitalisation, which stood at $16,08 billion at the end of March 2019 rose to $58,61 billion by March 2020.
But despite being deserted by foreigners the ZSE indices exhibited exceptional performance compared to selected regional peers.
Year-to- date performance of the Industrial and mining indices rose by 108,9 percent and 36 percent respectively in the three months to March, 2020.
The strong performance of the ZSE was buoyed by inflationary pressures, which have been undermining sound macroeconomic fundamentals. Inflation hit 785,6 percent in May from a lowly 5,39 percent in September 2018, as Government started the process of broad reforms.
Notably, with prices in Zimbabwe continuing to increase as most consumer goods are pegged in United States dollars, the volatility of the Zimbabwe dollar parallel market exchange rate will likely see increased inflationary pressures.
Amid worsening economic situation, impact of sanctions, absence of external funding support and critically low industrial production, the Zimbabwe dollar has plummeted from 2,5 to 1 to 68 to 1 against the US dollar, with the exchange rate even steeper on the parallel market.
In the first quarter of 2020, Zimbabwe’s inflation was the highest in Africa followed by Sudan at 81,6 percent and Angola at 19,62 percent.
Other regional stock markets declined sharply in response to effects of the spread of the corona virus and measures taken by governments in response, which resulted in slowdown in economic activities affecting stock markets around the world.
The Zimbabwe Stock Exchange has been maintaining a constant upward trajectory since December 2019. The Industrial, Mining, All Share and the Top 10 indices rose by 111,03 percent, 161,05 percent, 112,36 percent and 95,96 percent respectively, to reach 1617,24; 826.64; 488,6 and 397,18 points by end of April 2020.
On the other hand the volume of shares traded declined in the period under review by 46,22 percent. However, the market indices grew at a slower rate than inflation; year-on-year inflation stood at 676,4 percent at the end of March while the Zimbabwe Stock Exchange All Share index rose by 275 percent between March 2019 and March 2020.