LOCAL research firm, Akribos Research Services, has encouraged investors to exercise caution during the Zimbabwe Stock Exchange (ZSE) bull runs, as the bourse’s performance is tied to movements on the exchange rate.
Since the introduction of the local currency, ZiG, on April 5, 2024, the domestic tender has remained volatile, losing about half of its value.
The Reserve Bank of Zimbabwe reported that the total holdings of gold and foreign reserves have increased by 87%, from US$285 million in April 2024 to around US$550 million in support of the ZiG as of the end of last month.
However, with the informal sector generating US$14,2 billion annually and having US$2,5 billion in circulation, the ZiG remains volatile as the economy is highly dollarised.
“In 2025, investors should exercise caution during bull runs, as price movements may sometimes be unsustainable due to a lack of underlying economic fundamental support. While market rallies can create excitement, not all gains are backed by solid earnings growth or sound business performance,” Akribos said, in its latest market outlook.
“Consequently, a disciplined approach is essential to avoid overexposure to inflated valuations that could result in significant losses when market correction occurs.”
However, moving into 2025, Akribos maintains a cautiously optimistic market outlook contingent on the government’s lax on over-regulation and consistency in policy declaration and implementation.
“The lax could result in a lighter regulatory approach for businesses and markets, creating a more favourable environment for private sector growth. Treasury recently reduced the capital gains tax to 1% from 4%, indicating a policy shift aimed at encouraging broader participation in the stock market,” Akribos said.
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“This change reduces trading costs and incentivises both short-term traders and long-term investors. This optimistic forecast is also underpinned by expectations of increased agricultural output, mining activities and infrastructural developments.”
Akribos said the rain forecasts provided good prospects for the agriculture sector that would spill over benefits to allied industries and sectors.
According to the firm, the ZSE All Share Index reflected prevailing market sentiment, where equities are increasingly used as a hedge against inflation.
The index was on an upward trajectory for the greater part of 2024, breaching the 292-point mark before slowing down towards the end of the year, closing at 217,58 points.
While the ZSE’s market capitalisation rose by 125% nominally, the increase was 31% in real terms.
“The overall trend on the ZSE shows a strong correlation with movements in the ZiG parallel exchange rates and rate premiums. The relationship between the ZSE performance, exchange rates and inflation hedging in Zimbabwe remains complex and influenced by various factors such as market liquidity, government policies, risk perception and real income,” Akribos said.
“Despite this complexity, Akribos’ simplified regression model applied to 2024 data indicated a 92% correlation between the parallel exchange rate and the ZSE All Share Index. The ZSE All Share Index and the exchange rate are both influenced by inflation, which explains the strong positive correlation.”
The research firm noted that when inflation was high, investors moved ZiG into stocks, expecting returns that outpaced inflation and protected them against a weakening currency.
“This surge in demand pushes the All Share Index higher, linking it to exchange rate movements,” Akribos said.
