• ZSE outshines African markets
  • VFEX suffers from liquidity constraints
  • Avid investors take out early-year gains

Harare- Capital markets in Zimbabwe are ranked among the most volatile in the world owing to underlying weak economic fundamentals which affect sentiment and investor appetite. Volatile markets are known to yield very high margins of movement, in either direction (negative or positive) as the movement is not impacted by particular asset class fundamentals but rather by speculation. Hence, Zimbabwe has recorded a world record stock movement in the past three years, with the Zimbabwe Stock Exchange (ZSE) emerging as the best-performing bourse in 2020 and 2021 respectively, and the worst-performing bourse in 2022 on an annual investment return basis.

As such, most capital markets investors in Zimbabwe have been groomed to aim for short-term returns as a risk aversion mechanism. This came on the back of rampant inflation and a runaway exchange rate which has seen the ZWL depreciate against the United States Dollar daily. These weak fundamentals, along with policy inconsistency, bottle up to raise the bar of uncertainty in regulated markets and the economy at large.
Beginning in 2020, a trend of hoarding stocks on the ZSE before immediately disposing of them became more common on ZSE. The ZSE would record a staggering demand level in the first half of each month, which saw stock prices sharply rising daily, before a halt in the second half of each respective month as the investors took out gains made in the first half. 

The chart below reflects the trend on ZSE in 2023 as the trend continues. The chart notes down some upward movement in the first part of the month before a notable recession in the other half. Meanwhile, the VFEX shows a different trend. It can be denoted from the chart that in 2023 the VFEX recorded its peak in early January, and has since been on a downward trend. The growth trajectory was halted and reversed following the announcement of the 2023 monetary policy. However, is the same policy responsible for the recent recovery on ZSE also driving down prices on the VFEX?


Before the revision of the contractionary monetary policy earlier this year, the VFEX was gaining more traction as investors shunned the ZSE which was failing to outpace inflation amid tightened liquidity in the economy. The main incentive for investing in the VFEX was value preservation offered by the hard currency, US$, which is the trading unit on the bourse. However, as liquidity constraints were affecting every component of the economy, the VFEX offered fewer prospects of huge positive returns as was common on ZSE in the prior two years.

Following the gradual loosening of the contractionary monetary policy in 2023, the ZSE has regained its position in Africa as the best-performing bourse owing to an increase in liquidity. At the same time, the VFEX continues to suffer liquidity constraints as the greenback in formal channels remains very low concerning the aggregate foreign currency in circulation. This has seen some investors withdrawing from the VFEX in favour of the ZSE as they target quick and enormous gains offered by the highly liquid market. In retrospect, while on the ZSE, Padenga was averaging 3 million shares per month in trades, and these were valued at circa US$700,000. Since migrating to VFEX, the counter is now averaging 700,000 shares a month, valued at an average of US$120,000.

The trend of buying and selling shares in the short-term on ZSE can be alleged to be responsible for the high magnitude of gains on the market as this activity insures more liquidity circulating on the bourse frequently. Theoretically, one of the primary reasons most capital investors prefer short-term investments is that they offer the potential for higher returns than long-term investments. This is because short-term investments are typically more volatile than long-term investments, meaning that they can experience larger price swings in a shorter period. This volatility can be beneficial for investors who are willing to take on more risk in exchange for potentially higher returns. 

Additionally, short-term investments often involve less paperwork and fewer fees than long-term investments, which can also contribute to higher returns. While the 2022 policy measures included an increment in capital gains tax, the cost is usually offset by the high magnitude of gains posed by the bourse in the shortest time possible. In practice, the ZSE rose by over 13% in the first 2-weeks of January before a slow-down in the third week of the month to about 9% and subsequently kicked back in the fourth week. In February, the bourse garnered a whopping 31% nominal gains in the first 2-weeks of the month, before retreating in the third week of the month to about 19%, and has since recorded a mild bounce-back in the fourth week.

Capital investors prefer short-term investments as they offer greater liquidity than long-term investments. Liquidity refers to how quickly an asset can be converted into cash without significantly affecting its value. This is highlighted in the trend of January and February aforementioned. Short-term investments are typically more liquid than long-term ones because they can be liquidated quickly without incurring large transaction costs or waiting periods. This makes them ideal for investors who need access to their funds quickly or who may need to make frequent adjustments to their portfolios due to changing market conditions, like rampant inflation and an uncertain political climate this year. Amid the high uncertainty, short-term investments tend to involve less risk than long-term ones. This is because the shorter time frame of a short-term investment reduces the amount of time that an investor’s money is exposed to market fluctuations and other risks associated with investing in the stock market.

In conclusion, the short-term hoarding and selling of stocks on ZSE are likely to sustain for a longer duration from now due to the upside of such an investment model, which includes the potential for higher returns, greater liquidity, and lower risk associated with them. Short-term investment also offers flexibility as it allows investors to adjust their portfolios quickly in response to changing market conditions without incurring large transaction costs or waiting periods like those associated with longer-term investment options. 

For these reasons, many capital investors are finding that investing in short-term options provides them with an attractive balance between risk and reward that makes it worth considering as part of their overall portfolio strategy.


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