The Zimbabwe Stock Exchange (ZSE) has had its ups and downs and 2022 was a toughie. Zimbabwe continues to be a challenging environment to operate in for the companies listed on the exchange. However, in the past, that has not necessarily meant that the ZSE struggles.
The ZSE had a good 2021, growing by 314%, meaning that although that year closed out with a 60.7% YoY inflation rate, investing on the ZSE was better than stuffing USDs in a pillow. You don’t need reminding that 2021 was a difficult year and yet the ZSE did okay.
The year 2022 was not as good.
The All-Share Index grew by 79.38% in 2022. Remember the All Share Index shows changes in the average value of all the shares on the ZSE. In a normal economy, the 79.38% growth would have been great. Globally, equities lost a fifth of their value in 2022, which was the worst performance since the financial crisis of 2008. The Johannesburg Stock Exchange was down 0.9% in the year.
This shows just how impressive the ZSE’s 79.38% growth was. However, in Zim, we closed out December with an inflation rate of 243.8%.
We are saying prices generally rose by 243.8% from December 2021 to December 2022. Yet, if you put your hard-earned money into shares on the ZSE, your investment grew by 79.38%. That means inflation wiped out whatever gains you made and put you in the hole.
I should mention though that the All Share is an average, This means some companies’ shares performed better than others. For example, Econet shares saw a measly 14.99% price increase, whilst First Capital saw a 355.74% price increase in the same period.
Liquidity and undervalued stocks
One of the main reasons the ZSE struggled in 2022 was the interest rate hike that came halfway through the year. The high interest rate had the effect of wiping excess cash off the market, i.e. tightening liquidity as the RBZ Governor would say. That meant less money to invest in shares on the ZSE.
Therefore, there is a case to be made that shares on the ZSE are undervalued. The share prices we see today do not reflect real market sentiment.
The market did not have the liquid cash to buy shares as they really wanted to. This means the liquidity challenge artificially curtailed demand. Basic economics teaches us that that means the price we see is lower than it otherwise would have been.
In English, it means even if investors saw a company make moves that they thought bolstered its future prospects, they couldn’t really invest in that company like they wanted to.
We are no financial advisors here but common sense says you buy when things are undervalued. It could be the perfect time to get in on the ZSE action. However, this being Zimbabwe and the global economy still limping, it could be the worst time to invest. Do your own research if you want to try it all out.
ZSE developments
It may have been a tough year but at least we got new assets to invest in. Rather than primarily focusing on the shares of listed companies, investors got a few more options.
The big one is Real Estate Investment Trusts (REITs). These allow collective investment in real estate. Funds are pooled together and invested in property and any gains are split according to how much each investor contributed.
Zimbabweans love their real estate and it is actually a bit of a surprise that it took this long for REITs to hit the ZSE. I believe if these are properly marketed, Zimbos would rush to invest.
In the year we also saw about 4 more ETFs listed. Exchange Traded Funds (ETFs) are pooled investment vehicles like the REITs we talked about above. However, the pooled funds here are not limited to real estate investment. They can focus on certain sectors, commodities, indices or other assets.
Both REITs and ETFs sound like what we understand as mutual funds. You know, the kind that the likes of Old Mutual are known for. They are similar except that REITs and ETFs can be traded on the ZSE just like shares, mutual funds cannot be traded on the stock exchange.
Moving on from these pooled funds, we also saw gold coins introduced. They were prescribed asset status and you may not like them but they offer a new kind of asset. The ZSE is richer because they exist.
VFEX
The Victoria Falls Exchange (VFEX) had its best year yet. It’s now up to 6 counters and it looks like we will see a few more companies move there from the ZSE.
You will remember that the VFEX is a USD-only exchange and so for companies looking to raise capital in forex, it makes sense to list there. There is also the stability that comes from the stronger USD that is attracting companies to the new exchange. Will the VFEX plunder the ZSE then?
It is then a bit shocking to see that only 6 companies have made the move and some of those have not even delisted from the ZSE. Experts expect more to move to the VFEX but even in that case, they expect there to be a reversal in the future. What gives?
When you raise capital in USD on the VFEX you better be earning enough USD to appease those USD investors of yours. As we know, these companies cannot refuse to accept the ZW$ and so most companies’ earnings are in ZW$. They are actually looking to the forex auction to get some USD.
This is why there hasn’t been a rush to delist from the ZSE and list on the VFEX.
It’s all exciting stuff. Do let us know what you think about all this in the comments section below.
Also read:
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The Zimbabwe Stock Exchange (ZSE) grew by 314.37% in 2021, whilst inflation rate was 60.7%
I’m sorry, but published accounts for ZSE companies are almost useless for many
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