THE Zimbabwe Stock Exchange (ZSE) All Share Index suffered a -14,7% decline in September, from August levels, despite a nominal 1,2% growth.
Meanwhile, the United States dollar (USD) denominated bourse, Victoria Falls Stock Exchange (VFEX) All Share Index surged by 3,7% in September, buttressing August performance.
In September, the Reserve Bank of Zimbabwe (RBZ) mildly loosened the contractionary policy measures by paying government contractors in local currency, Zimbabwe dollar (ZWL), which saw a notable increase in ZWL supply in the economy.
Consequently, ZWL transactions improved against previous months, while overall demand in the economy notched up. Subsequently, the ZSE registered improved demand, with a sharp growth in turnover.
While the All Share Index surged by 1,2% to 126,642.4 points, aggregate traded value increased by 133% in September to ZW$91,3 billion, from ZW$39,2 billion recorded in August.
This is reflective of increased demand for ZWL denominated stocks amid increased supply of the currency.
However, the increased ZWL supply led to safe-haven seeking in other asset classes, which include other currencies, and thus, demand for the USD surged and subsequently collapsing the ZWL.
The ZWL depreciated by a staggering -15,7% against the USD in September, reaching a year-to-date decline of -87%.
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Due to “stunted growth” in the first two weeks of September, the ZSE could not catch up with ZWL inflation and exchange rate loss in the month under review, which saw the 1,2% nominal growth in the All Share Index translating to a loss of -14,69% in USD terms.
On a year-to-date basis, the ZSE closed the month at a loss of -18,5% in USD terms, which is the 4th worst performance in Africa.
The ZSE, which once boasted a 112% YTD return as of mid-May, has failed to recoup the losses, which emanated from a rampant exchange rate depreciation between late May and June, which saw the bourse reversing the best performance in Africa to a worst return on investment.
The failure to recoup the negative position despite a prolonged stability of the exchange rate between July and early September has heavily weighed on investor sentiment as prospects of a recovery seem bleak.
Resultantly, sell-offs from foreign investors remained significantly high with outflows of ZW$6 billion, representing 6,57% of the aggregate turnover.
Meanwhile, foreign inflows slowed down to a two-year low of ZW$38,8 million, which would be further low a record if adjusted for inflation.
On the other hand, the USD denominated bourse, VFEX, recorded a commendable performance in the month under review, buttressing a 5,2% growth recorded in August.
The All Share Index rose by 3,7% to close at 74,4758 points, a three-month high. The growth was driven by increased demand for USD stocks which offer a safe haven amid currency uncertainty.
Increased use of foreign currency in the economy meant increased supply of foreign currency in formal channels, and subsequently ramped up activity on the bourse.
A total of 15,5 million shares exchanged hands on VFEX, up from 9,6 million traded in August. However, in value terms, an aggregate of US$1,8 million was traded on VFEX, slightly down from US$2 million traded in August. This is reflective of increased participation of low-value stocks during September.
Going forward, the increased use of foreign currency in the economy will continue driving up demand for VFEX stocks. Meanwhile, the ZSE will remain highly susceptible to exchange losses as a sustainable stability or recovery of the ZWL is not a reality.
US$1:ZW$5 546,06 as at October 2 2024.
- 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_
