Harare – The ZSE which has about 60 active counters and handles annual trades valued at $1 billion shed 17% in the first quarter of 2019.
The loss as measured by the industrials index comes after three successive rallying quarters, spanning from March 2018 up to December of the same year.
The index measures the movement in share prices of at least 57 non mining stocks listed on the exchange and has been the major index for over 20 years up until the introduction of 2 more indices in January 2018.
The losses in the stock market in the first quarter of 2019 comes amid monetary changes and a shift in the general business environment in the last 6 months.
Over the last 6 months government introduced a 2% intermediary money transfer tax, which however is exempted in stock market trading, separation of FCAs, introduction of a new currency and partially floating of the exchange rate.
These measures catalysed a shift in the macro economic environment from a spend driven to thrift economy, a move government says is targeted at curbing money supply growth through curtailing of the budget deficit.
Essentially it is key to note that the movement on the stock market since the beginning of the year have largely been in line with exchange rate dynamics.
Before the liberation of the exchange rate stocks enjoyed a sharp rally and ahead of the anticipated liberalization, a general discount filtered and the trend has been sustained to date.
In periods before the liberalization foreign investors had no easy way out given the long forex queues which characterized the RBZ controlled allocations. In a bid to preserve value and sweat the locked money investors recycled their local positions back into stocks thus propelling higher valuations.
It has however been local investors who have been at the forefront of driving trades on the market as inflation worked against money market investments. Local investors sought a hedge to preserve capital as inflation shot into unchartered territory in post dollarisation trades.
The reverse trend from mid-February might have been inspired by anticipation of a more fluid and efficient forex interbank market which would necessitate price discovery and increased forex flows. It was argued then that the parallel market rate would likely fold and retrace in line with the interbank market.
This anticipation would lure investors notably foreign out of stocks and part of local investors forseeing foreign led selloffs would also take positions to offload after a 2 year rally.
Locals have also been motivated to dispose in the quarter under review in order to address regulatory demands such as reserve requirements and prescribed assets demand as government moves to curb money supply growth.
-Equity Axis News
Raynold Mhotseka is a Journalism and Media Studies student at the University of Zimbabwe. He serves as a news writer at financial research firm, Equity Axis where he is currently on attachment. He can be contacted through the following email links, firstname.lastname@example.org and email@example.com.