Zimbabwe’s stock market is experiencing a breathtaking rally, with gains of up to 800% in a single year. However, this dramatic surge is causing concern among investors who fear that it is a sign of an inflation spiral. The country is grappling with an annual inflation rate of over 100%, which is evoking memories of the hyperinflation crisis it faced in the past.
Despite its relatively small size compared to neighboring South Africa’s massive stock exchange, Zimbabwe’s stock market provides a refuge for local investors looking to protect the value of their money. With the Zimbabwe dollar plunging in value on a daily basis, businesses are reluctant to accept it as payment for major purchases such as property, cars, or even fuel. As a result, many Zimbabweans are turning to the stock market as a means of preserving their wealth.
Tatenda Nemaungwe, a stock trader in Harare, explains that the hyperinflationary environment has motivated locals to invest their Zimbabwe dollars in equities. Nemaungwe, who now manages his own portfolio after quitting as a personal financial adviser, has seen his earnings increase by more than 10 times his previous salary thanks to the ongoing bull run in the stock market.
Although the Zimbabwe stock market may be relatively small, it has outperformed other global indices with ease. While Argentina’s Merval index has doubled and the S&P 500 has rallied by 16%, Zimbabwe’s stock market has far surpassed these gains. However, foreign investors have largely abandoned the market due to concerns about the country’s economic challenges. Foreign participation in trading is minimal, accounting for only 15% of total trading volume.
The Zimbabwe stock exchange, established in 1894, is one of the oldest in Africa. Located in the upmarket Harare suburb of Highlands, the exchange’s trading board displays a frenzy of price action amidst the calm and leafy residential surroundings. Despite the volatility, the stock market has attracted around 23,000 retail investors who are keen to capitalize on the opportunity for profit.
Investors in Harare have a selection of 55 companies to choose from, with blue-chip stocks such as Delta Corp., Econet Wireless Zimbabwe Ltd., and EcoCash Holdings Zimbabwe Ltd. being the most popular. These companies provide essential products and services that Zimbabweans rely on, which helps to sustain their sales and earnings even in the face of rampant inflation.
While the stock market has experienced its share of setbacks, such as a significant devaluation of the local currency in May, investors like Simba Nyamadzawo remain optimistic. Nyamadzawo suffered losses due to the currency devaluation, but he believes that the upcoming general elections in August will trigger the next bull run. However, foreign investors are unlikely to be enticed by the recent rally, as it is primarily driven by local investors seeking a hedge against inflation.
Despite the stock market’s impressive gains, there are concerns among locals that regulators may intervene to prevent excessive speculation. In 2020, the exchange was temporarily shut down for five weeks due to concerns over speculation in stocks with overseas listings. Nevertheless, many investors are still eager to capitalize on the market’s potential, although they remain cautious and ready to withdraw their funds if needed.
In conclusion, Zimbabwe’s stock market has experienced an extraordinary rally in the face of the country’s ongoing economic challenges. Local investors, seeking protection against rampant inflation, are turning to the stock market as a refuge for their money. While the market’s gains have attracted retail investors, foreign participation remains limited. The upcoming general elections are expected to be a significant catalyst for the stock market, although concerns about regulatory intervention continue to linger. Investors are hopeful but mindful of the volatile economic landscape, and they stand ready to make swift decisions based on the market’s trajectory.
