Mugabexit wipes $6 billion off ZSE

Published: 23 November 2017

THE Zimbabwe Stock Exchange (ZSE) has lost nearly $6 billion since a military operation that forced former President Robert Mugabe to resign on Tuesday, with analysts saying investors were responding positively to prospects of macroeconomic stability.

ZSE market capitalisation peaked at $15,2 billion on November 14, the day before the military announced its intervention, but had come off to $9,5 billion yesterday. The industrial index shed 37,48 percent since Thursday last week to close at 329,63 points yesterday.

Mugabe, Zimbabwe's sole leader since independence in 1980, is set to be succeeded by long-time ally-turned rival and former deputy, Emmerson Mnangagwa. Mnangagwa is expected to be sworn in as president tomorrow.

The market, however, awaits Mnangagwa's Cabinet choices, amid suggestions it might not include opposition figures as initially indicated.

Addressing party supporters last evening following his return to the country, Mnangagwa promised to prioritise the economy.

"We want to grow our economy. We want jobs, jobs, jobs in our country. We need the co-operation of our region and friends from outside Africa," Mnangagwa told cheering supporters at the ZANU-PF headquarters in the capital.

The market losses, which halted a year-long bull run, could signal expectations of the economy returning to normalcy after resurgent inflation forced Zimbabweans to seek safe haven investments to dodge an erosion of value, analysts said.

Analysts have pointed to disparities between the Old Mutual share price in London and Harare, where it has recently traded at five times the LSE price, as evidence of unrealistic valuations in Zimbabwe.

"It's to do with speculation," said economist, Trust Chikohora, explaining the decline on the stock market.

"People have been hit with a euphoria that things are going to improve,"

Another economist, Persistence Gwanyanya, agreed.

"There is renewed hope for economic improvement," he said.

Gwanyanya said speculation that a new regime would result in improvement in the cash situation "could be the major reason for the withdrawal of investors from the stock market".

Events leading to Mugabe's exit had materially improved the prospect of a change in leadership and the re-opening of foreign capital inflows, Dubai-based Exotix Capital analyst, Hasnain Malik, wrote in a note this week.

"Falling local share prices are, until the Old Mutual Implied Rate approaches zero, a reflection of increasing macroeconomic optimism," Malik wrote.

Zimbabwe is currently going through its worst post-dollarisation crisis, characterised by resurgent inflation and cash shortages that have resulted in depositors failing to withdraw money from banks.

A US dollar-dominated hard currency economy crumbled late last year after money printing by government, which introduced bond notes in November to ease a cash shortage, replaced US dollar bank balances, resulting in foreign currency shortages.

The bull run on the ZSE had been driven largely by depositors with huge cash holdings in banks which they could not easily convert into hard currency.

The market recorded massive losses this week, sustaining losses that started on Wednesday last week after the Zimbabwe Defence Forces (ZDF) seized power to stop what generals described as a degenerating social, economic and political situation.

During the 12 months to November 14, the day before the start of the military operation, the industrial index had gained 331,48 percent, the best performance globally.

The bull run was driven by deteriorating confidence in the broader economy. Over the past 12 months, there has been a strong causal relationship between the worsening of the economic situation in the country and increased interest in equities.

The bull run climaxed in September and October when the market was rallying hell-for-leather even when the country's economic problems were worsening.

From late-September to mid-October the ZSE market capitalisation gained more than $4 billion.

The market's surge amid economic turmoil was as a result of investors' desire to hedge against inflation following a bad experience during a 2008 hyperinflationary crisis under which many lost their savings.

Between 2004 and 2008, the country experienced considerable economic hardships, with severe foreign exchange shortages and hyperinflation.

"My expectation is that this trend will continue for a while as the stock market was overvalued and not driven by economic fundamentals but by cash challenges in the economy," said Gwanyanya.

He pointed out, however, that the long term trend would depend on the ability of the new government to formulate and implement policies that promote investment and growth.

- Fin Gaz