Stocks rally in four successive years even as the economy slips

  • In a period of higher inflation and subsequent value erosion, stocks have provided a safe haven thus pushing demand up.
  • Of the total 59 counters trading on the Zimbabwe Stock Exchange (ZSE), 57 closed 2019 with positive gains
  • The biggest driver of stock market gains in the year under review was inflation and exchange rate losses

Faced with an economy grappling through truly rough patches in 2019 largely characterised by a myriad of headwinds in the fuel and energy sectors, foreign currency and cash shortages, drought and a devastating Cyclone Idai, the Stock Market in the previous year performed unsurprisingly sanguine and for one general reason.

In a period of higher inflation and subsequent value erosion, stocks have provided a safe haven thus pushing demand up.

Not only stocks though but gold, bonds and certificate of deposit can offer a safe-haven investment in times of economic meltdown.

Of the total 59 counters trading on the Zimbabwe Stock Exchange (ZSE), 57 closed 2019 with positive gains which was a post dollarisation record high. Only two counters which include the recently listed fin-tech focused company, Cassava Smartech (parent of Ecocash and Steward Bank) tumbled.

In 2016, stocks went up by 26% from a negative 29% recorded in 2015 and carried on to reach a record high of 130% in 2017 amidst political transitions and high uncertainty. In 2018 and 2019, stocks went up by 46% and 57% respectively.

A look at the top performers showed that 60% of the top performing counters were exposed to foreign currency earnings.

“Although all heavy caps with the exception of 1 went up, gains in heavies lagged gains in foreign currency exposed companies,” reads part of a report by research firm Equity Axis.

“This is largely due to the fact that the country changed its currency in the period under review. The export receipts previously received at 1:1 would naturally go up on liberalisation of the exchange rate and local currency loss.”

The broader market posted a yield of 57.3% over the full year which is a continuation of gains accrued over the past two years.

The biggest driver of stock market gains in the year under review was inflation and exchange rate losses following the liberalisation of the Zimbabwean Dollar during the course of the year.

“Naturally inflation drive stock markets up as investors jostle to protect their funds from value erosion,” Equity Axis said.

While the market is not out-rightly predictable, 2020 looks highly a continuation of prior year outturns and this could prompt investors to keep seeking cover in stocks.

Equity Axis News

Raynold Mhotseka

For contacts email rayjnr.mhotseka@gmail.com or raynoldm@equityaxis.net

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