Circa 2008: Zimbabwe Stocks Soar as others Crash

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Is that sort of Headline coming to the US?

From Businessweekly, October 22, 2008 – While markets across the world have been crashing, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country’s hyperinflation.

The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent.

But before Wall Street traders start packing their bags and heading south, they should bear in mind that these figures are just another representation of Zimbabwe’s collapsing economy and are almost meaningless in real terms.

Zimbabwe, once a regional breadbasket, is staggering amid the world’s worst inflation, a looming humanitarian emergency and worsening shortages of food, gasoline and most basic goods. Inflation is at 231 million percent, but some experts put it more at about 20 trillion percent.

“Why leave money in the bank?” asked Emmanuel Munyukwi, chief executive of the Zimbabwe Stock Exchange at a seminar on the doing business in Zimbabwe on Tuesday.

“People are forced to come on the stock market. They believe that after hard currency, the stock market is the only viable option where you can get a bit of a return,” he said.

Zimbabwe’s stock exchange, established in 1896, is one of Africa’s oldest and the fourth largest. A securities commission has been established and it is hoping to follow in the footsteps of other countries like its neighbor South Africa and list as a company.

There are 19 stockbroking firms in Zimbabwe and 90 percent of investors come from institutions, asset managers or pension funds. About 8 percent of investors are individuals and only 2 percent are foreigners. This is in comparison to about a decade ago when foreigners made up about 30 percent of investors.

Munyukwi expressed his dismay at the “gross economic mismanagement” by the Zimbabwean government which has led to the collapse of the economy, however, the stock exchange was managing to survive despite the harsh environment.

He cited Zimbabwe’s isolation from the international world _ and therefore protection from the financial turmoil _ as one of the reasons the market was performing well.

“We all know what has been happening to the world financial markets, yet the stock exchange in Zimbabwe is breaking all records. We are running short of superlatives to describe the performance of the market,” he said.

With the unofficial exchange rate leaping from 30 million Zimbabwean dollars to US$1 on Friday to 100 million to the greenback Monday, showing a shortage of cash, people are trying to hedge against inflation by turning to equities.

Some of the winners have been government controlled Zimpapers, which gained 3,471 percent on Monday to give a share price of US$0.8 while cement maker Lafarge saw their share price rise 1, 400 percent to US$0.90

Companies such as Dawn and African Sun, which are in the tourism sector, have seen real growth in U.S. dollar terms of over 300 percent.

The biggest sector on the stock exchange is financial services with newest listings being in the mining sector. Zimbabwe has vast untapped mineral wealth including gold, diamonds and platinum.

Munyukwi said market performance was also being driven by strong, cheap assets which are offering returns that were more than matching inflation.

“Some people think that this is a bubble about to burst but I don’t think so,” he said.

He acknowledged though that the market was largely overvalued in Zimbabwean dollar terms but undervalued in U.S. dollars.

Jonathan Waters, head of ZFN, a financial networking and analysis company, cautioned against too much optimism over the performance of the market.

“Nothing has really changed. The market is treading water,” he said.

Waters also said volumes being traded were very small and there was no real movement year on year. The market value of the ZSE being about US$2.5 billion compared to South Africa’s JSE, which is worth about US$460 billion.

Waters also cautioned about volatility in share prices with some stock being expensive the one week and cheap the next or vice versa.

Munyukwi said a political solution was vital to the resuscitation of the economy and expressed hope that the deadlock in talks over power-sharing between the opposition and President Robert Mugabe would be resolved. A deal is also key to unlocking millions of dollars in much-needed foreign aid.

“There has to be political change,” he said. “And I believe it will come sooner than we think.”