Investors run for cover in “coup fashion” as RTGS value crushes

HARARE- Investor sentiment is currently at its lowest in 10 years as worries of a RTGS$ crush rocks markets.

Trades on the ZSE, the country’s main bourse show a sustained rally spanning 9 successive weeks and since the beginning of the second quarter of 2019 to date, the stock market has gained a whopping 58% which is the unprecedented in post dollarization trades.

Over the whole 2018, the stock market gained 46% while gaining just above 50% in 2017, for the whole year.

Late in 2017, just before Robert Mugabe was forced out of power, stocks consolidated as investors took cover, amid high uncertainty.

Between October and mid November 2017, just before Mugabe stepped down, stocks added a solid 28% driving the stock market benchmark index to its highest level since 2009.

This past level of adverse investor sentiment with respect to the economy and other political developments, cannot however be compared to a huge 58% gain accrued on the ZSE since April 2019 to date.

For context, the ZSE has not over any single year and quarter, gained as much. The present gains are a record high and rightfully dwarfs ‘coup’ inspired gain in 2017.

The force behind the stock market gains has been a movement by investors to dump RTGS$ balances for stocks in response to the adverse movement in the exchange rate on the interbank market where the RTGS$ has lost significant value to the USD.

Since the partial liberalization of the exchange upto the time when government ceded more control into the hands of market players, last week, the RTGS$ had dropped 35% to the USD.

The decline could have been worse had government allowed the market to trade freely, as reflected by the tightening supply and outstanding demand. Most trades were being conducted off the market in twinning arrangement at superior price levels.

In the aftermath of letting up some more control of the market last week, which was coupled with an injection of borrowed forex funds, the RTGS$ has gone on to lose 50% in just 6 sessions. The interbank rate could even fall further if the present cap of .2 points per session is removed, given the wider disparity to the parallel exchange rate of about RTGS7.2 to USD1.

Against this value erosion where uncovered balances are exposed to high exchange rate loss as well as fast rising inflation, investors have sought to protect the residual value of their money by jumping into stocks, resulting in a growth in share prices on the ZSE.

On the outlook it is expected that stocks will consolidate further. In a weekly commentary to its clients, Equity Axis Research, said this trend will stretch into the second half period of the year, assuming industry remain skeptic of the interbank.


Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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