“ZSE gains $5bn market cap”
I saw this in the Sunday mail and failed to perceive if this was a bad or good thing. I mean I tried reading the report but all I could see were a bunch of percentages and figures that failed to make sense to me.
Do you happen to also not have a clue what that is? Well, don’t worry I did some research for both of us and I will attempt to make sense of that and subsequently anything else similar that you might encounter.
I’m sure you’re asking yourself whether to continue reading this or not. Or asking yourself if this is helpful seeing that this does not really impact your day to day life (though it should I must say). Let me help you make that decision: YES keep reading. Why? Largely because you’ve gone beyond the second paragraph already, meaning you also have no clue what that means and secondly because I took my time writing this – can’t let all this effort go to waste now can you? 😉
Anyway let’s get to it.
For starters, we need a little background on stock exchange in general. When a company needs to raise money, it issues shares aka stock to the public. The price of stock on the initial sale is determined by how much the company is estimated to be worth as well as how many of its shares are being sold. Thereafter, the shares continue to be traded by the public but this time the company ceases to be directly involved.
For the shares to continue to be traded there’s need for a platform to enable the smooth sale; this platform is called a Stock exchange. And this time instead of the stock prices being directly determined by the estimated company worth, they are determined by the forces of demand and supply which we call the market (though technically demand and supply are determined by how much people value a certain good which means the estimated worth of the company is still a factor).
So the ZSE in that title aka Zimbabwe Stock exchange is one such platform where shares are bought and sold (traded) by the public. However, the Stock Exchange is not limited to trading shares only but also bonds and notes (that by no means refers to bond notes) and all these are referred to as securities.
Now, market cap (which is market capitalisation) is the value of a company that is traded on the stock market and it is calculated by multiplying the total number of shares by the present share price.
Now that we got that, we can go ahead and talk about that title: ZSE gains $5bn market cap. Basically, using the above formula market cap could increase either because more shares have been introduced into the market or because the price of the already existing shares has increased or both. But in this case, the gain is due to the price of the already existing shares increasing.
So then does it mean people (which is the market) are predicting companies on the ZSE to gain more worth with time? Considering the current Zimbabwe situation that would not make sense because companies are barely thriving. The cash crisis is rendering most businesses to underperform or ultimately shut down, so why are stock prices increasing?
Remember 2008? Of course you do. Even if you’re too young to know or remember, it’s been talked about enough times for your brain to actually process it as a memory (that’s not a scientific statement by the way). Anyway, the year before 2008 i.e. 2007 people predicted that the Zim dollar would fail and hence they tried to find ways in which they could store value other than in the currency. So naturally, people flocked to the Stock exchange to buy shares and as a result stock prices increased.
Today, the same is happening. Everyone is looking for a way to preserve value, some have resorted to Bitcoin and cryptos, while some are flocking to buy shares. Therefore, the demand is high for both, remember when Techzim wrote about how the Bitcoin premium in Zim has risen to 85% and now the Sunday Mail is reporting on how the market capital gained $5 billion more in September.
Okay so now what?
Now you need to figure how to store up your own value. Either with Bitcoin or converting your money into assets or by buying shares on the Stock exchange. But either way, I will follow the Tinashe way and tell you to do your research! Techzim can help, we have a #MyZimHustle series in conjunction with Securities and Exchange Commission meant to illuminate people on Stock markets et al., it’s in both text and video format.
Financial literacy is a must especially in times like these. You know what they say ‘fool me once shame on you, fool me twice shame on me’. 2008 was the once, now you get to choose if 2018 will be the ‘twice’.
With that said, allow me to say: Congratulations, you’ve just been woke.