Ceteris Paribus: A look at stock markets performance in 2023

On the other hand, the ZSE All Share Index lost a substantial -78% over the corresponding period in 2022 in US$ terms

THE Zimbabwe Stock Exchange (ZSE) has already registered a commendable performance in 2023, with several key indicators showing positive signs for the country's economy.

The US$ market, Victoria Falls Stock Exchange (VFEX), on the other hand, has seen an overall negative outturn in 2023, mainly owing to currency related factors.

As we brace for 2024, it is, therefore, imperative to understand how these two stock markets are affected by the macro-economic environment. As at the end of November, the ZSE mainstream. All Share Index boasted of a year-to-date nominal return of 881%, which compares to a mild 35% over the corresponding period in 2022.

Meanwhile, the local and ZSE trading currency, ZWL, had parred -88% against the US$ in the 11-months to November 2023, which compares to a ZWL depreciation of -83% against the US$ over the same period in the prior year.

Consequently, in US$ terms the ZSE All Share Index garnered a positive growth of 16% since the beginning of 2023 to November, which is the second-best stock market performance in Africa on a year-to-date return basis.

On the other hand, the ZSE All Share Index lost a substantial -78% over the corresponding period in 2022 in US$ terms. Therefore, the 2023 ZSE performance thus far is commendable, despite being insufficient to reverse prior year's losses.

Limited ZWL investment options has led to more activity on ZSE, at a time most investors are driven by safe-haven seeking amid currency volatility. However, the ZWL has also been relatively stable for a greater part of the year, which allowed the ZSE to surpass the rate of currency depreciation.

On the other hand, the All Share Index has been oscillatory month-on-month in US$ terms owing to currency dynamics during the year. The Central Bank introduced measures meant to curb inflation and a runaway exchange rate mid of 2023, notably including the floating of the formal exchange rate and the introduction of a Dutch Auction Market which prioritizes higher bids.

Mainly these two measures saw an overnight jump in the formal exchange rate. Resultantly,  ZWL denominated assets saw an overnight sharp devaluation. This explains the substantial -30% decline in the All Share Index in US$ terms in June 2023, which is unprecedented.

Before this sharp plunge, the bourse had risen 44% year-to-date as of May 2023, which was on course to recoup prior year's losses. In July, the market dipped in both US$ and nominal terms. The currency fluctuations reversed the positive trend before later mildly recovering in August. Going forward, the ZSE remains subject to currency market developments in the country.

The relative currency stability has seen a mild recovery of the ZSE from losses suffered in prior year. However, the exchange premium has since widened to a circa 70% following an expansion in parallel market rate ahead of the festive holidays.

This rapid currency depreciation is also due to increased money supply in the economy, along with increasing policy uncertainties after a controversial 2024 national budget. On the VFEX, investor sentiment remains poor with the legacy challenge of liquidity.

By operating in a highly sort after hard currency in an economy with low confidence in the banking system, low foreign currency deposits have had a negative bearing on activity on the VFEX. Year-to-date, the VFEX All Share Index had succumbed to a -30% decline by end of November.

The poor performance follows the addition of six new counters on the bourse, five migrating from ZSE against one IPO.

The negative trajectory was driven by heightened sell-offs in the second and third quarter of the year, induced by low US$ liquidity in formal banking channels as well as confidence in the regulatory bodies with respect to foreign currency-based investments in the country.

On the other hand, new listings on VFEX have aided in expanding market capitalization by a staggering 109% in the first 11-months of 2023 to US$1.18 billion.

  • 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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