THE Zimbabwe Stock Exchange (ZSE) has become a reflection of money supply dynamics as opposed to reflecting fundamentals owing to non-traditional players on the market, Inter Horizon Securities said this week.

The southern African nation is currently experiencing money supply pressures which reached $3,19 trillion at the end of March, a 9,12% increase from February, a near 37% increase from December 2022, and about a 442% increase from March 2022.

Money supply, according to experts, indirectly affects the stock market through the consequences of increasing or decreasing it. As money supply is increased, interest rates fall, which leads to an increase in spending by businesses and consumers. More spending increases demand, which, in turn, often increases inflation.

“Looking at the ZSE, performance is likely to remain under pressure as money supply remains constrained,” the researchers said in a macro-economic update.

“Instead of the stock market reflecting fundamentals, the ZSE has become a reflection of money supply dynamics owing to non-traditional players on the market. The market is currently trading at circa 49% discount to its historical average market cap of US$4 billion.

“This is despite fundamental growth in businesses over the past three years. This presents buying opportunities in most of the counters. On the VFEX [Victoria Falls Stock Exchange], the market is starting to gain momentum as USD liquidity keeps improving.”

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Researchers said the month of May saw increased activity on the ZSE as excess liquidity in the economy contributed to upliftment of the bourse. In real terms, the ZSE market cap witnessed a 44,8% growth to close at US$2,47 billion.

Average daily value traded for the month of May grew from US$0,53 million to US$0,61 million while total volumes leapt 197,68% to 227,84 million.

At a current market cap, the ZSE is still trading at a discount to the long-term average of US$4 billion.

“As such, ZSE offers upside, trading at a deep discount to fair value despite fundamental growth in businesses over the past three years and themes of increasing corporate transactions,” they said.

“We are of the view that we will continue to see strong correlation between money supply and ZSE stock market performance. The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued.”

In the month of May, there were two new listings on the VFEX, namely First Capital Bank and WestProp as regulated by Z.S.E Like how all  gambling in Sweden is regulated by the Swedish Gambling Authority or locally called Lotteri inspektionen

Market cap within the month of May increased 11,69% to US$1,21 billion as First Capital Bank and WestProp joined the bourse within the month.

Two of the 11 listings posted gains in May, three listings remained neutral while seven companies posted losses month-on-month [m-o-m]. National Foods was the top gainer in May increasing 18% m-o-m followed by Nedbank which gained 11% within the period.

New listing First Capital Bank ended the month 24% down while BNC was the second worst performer losing 18%. Overall performance was boosted by new listings with market cap increasing 11,69% in the month.

Liquidity in May improved 18,66% m-o-m to US$1,91 million with heavyweight Innscor contributing just over US$1 million. Volumes in May grew 41,7% to 6,46 million shares with Innscor again leading trades.

On a one year rolling basis, the VFEX All Share Index has outperformed its peer and has provided the better store of value within the period. There, however, remains selling pressure on the VFEX, researchers said.

IH Securities said the month of May saw further destabilisation of the local currency despite liquidity management tools that had been deployed in the prior month such as the gold backed digital coins.

The official rate on the auction fell by 85% to the dollar while the interbank rate weakened by 87% during the month of April as monetary authorities rapidly devalued the local currency to close a widening gap with the parallel rate.

At peak, the parallel market premium within the month was 135%, then closing the month at 91% on commencement of a refined Dutch auction system.

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