Ceteris Paribus: Investor Digest: ZSE punters’ early-year sweep

The mainstream ZSE All Share Index surged by a staggering 24,91% in nominal terms in the first week of 2024 to close at an all-time high of 253 617.96 points.

THE Zimbabwe Stock Exchange (ZSE) offered a remedy to “January disease” for avid investors in early year trades as increased demand pushed up stock prices.

The bourse leveraged on consistency of price increments to outpace exchange rate depreciation, thus emerging the best performing bourse in the region in the first week of 2024 on an investment-return basis.

The mainstream ZSE All Share Index surged by a staggering 24,91% in nominal terms in the first week of 2024 to close at an all-time high of 253 617.96 points.

This growth was premised on safe-haven seeking by ZWL holders amid a run-away parallel exchange rate which widened the exchange premium to over 76%.

As the exchange premium widens, business players tend to hedge against exchange losses by applying futures on pricing, hence stimulating ZWL inflation. The anticipation of a rampant ZWL inflation then drives investors to seek value preservation in limited options which mainly include currency trading in favour of a hard-curency, and alternatively holding stocks.

The uncertainty of the exchange rate amid controversial measures from the Ministry of Finance to increase the fiscal position of the government as well as force the use of the local currency has also aided in driving demand for a safe-haven.

Coupled with the above driving factors, investors tend to opt for high value stocks which are deemed less susceptible to volatility in the macro-economic environment.

Consequently, the ZSE Top 10 Index (market heavies) notched by a record 26% in nominal terms in the first week of the year, trailed by the ZSE Medium Cap Index which firmed 7%.

Agreeably to the aforementioned claim, the ZSE Small Cap Index lost ground by a mild -0,02% after sailing constant for over 3-weeks.

Traditionally, following a commendable performance in a prior month, the ZSE would succumb to profit-taking induced sell-offs in the preceding month which would in-turn weigh down on prices as supply increases ahead of demand.

However, for the past 4-months the bourse has sustained a growth trajectory as it has grown non-viable to acquire foreign currency on the parallel market which is spiraling on a daily basis.  The stock market performance in 2023 also improved investor morale on long-term investment which has seen more investors opting to hold-on to their portfolios.

The bourse closed the month of December with a nominal growth of 10,2%, from 21,8% in November. In US$ terms, the bourse garnered a growth of 21% in the year 2023, against a loss of -71% registered in 2022. In nominal terms, the ZSE was up 982% in 2023, compared to 80% in 2022.

In US$ terms, the ZSE All Share Index garnered a growth of 20.3% in nominal terms and 15,5% in US$ terms. On the other hand, the ZWL depreciated by -5,3% against the US$ in the first week of 2024.

Since the performance is highly driven by dynamics around the exchange rate and ZWL inflation, a stability of these two will see a relative stability on the ZSE. It is also imperative to appreciate that increased ZWL liquidity in the economy following the payment of ZWL contractors also enhanced activity and volumes on the ZSE.

Therefore, early sell-offs on ZSE as investors take out gains recorded in the first week of January are anticipated. In perspective, an investor who obtained short-term financing in December and acquired shares worth US$5 000 on the ZSE, would have increased the portfolio by US$775 to US$5 775 in 1-week. This means the investor would have repaid the principal amount and compounded interest and left with a circa US$500 in just 1-week. This derivative justifies an expected early sell-off or liquidation of this respective portfolio.

In conclusion, the early commendable performance on ZSE will only hold as will exchange rate and ZWL inflation dynamics.

  • Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — [email protected] or [email protected], Twitter: TWDuma_

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