• ZSE halted trading due to a circuit breaker triggered by an unsustainable threshold.
  • The halt was caused by investors trying to grab any shares due to the depreciating local currency.
  • The stock market is likely to face continued volatility due to the depreciating currency.

Here is what happened

It is usually a very unlikely scenario for the stock market to halt trades especially so in the middle of trading. Regulation however allows for the triggering of what are known as circuit breakers when an unusual stimulant drives stocks either up or down by a defined threshold considered as unsustainable.

For the ZSE, the main stock market in Zimbabwe, where over 35 stocks are traded, a circuit breaker is triggered once the overall stock has lost or gained 10% during the course of a single session. There are a few incidences in the past where the circuit breaker has been dropped down on the ZSE and these incidences have typically been seen as market rerating due to currency volatility. 

The most pronounced break from trading were those experienced in 2008, when the ZSE shut down and suspended trading indefinitely due to hyperinflation. In 2020, government also forced the bourse to stop trading after a sharp surge in prices in successive sessions. Authorities cited the OMIR, and general fungibility as causatives of the spike, which they believed were driving the Zimdollar into further losses.

However, the above were not similar to the inherent circuit breaker triggered in Monday’s session. There is no incidence in the recent past when the ZSE halted trades, due to similar spikes.

What has caused the halt

Trading was suspended because investors were trying to grab any shares they could get their hands on in response to the depreciating local currency, against the greenback. The local unit has eased by 50% since the beginning of the year on the auction market. The losses on the parallel market are more pronounced at 70% on a similar scale. These losses naturally drive prices of Zimdollar rated goods, assets and services up, as economic agents seek value preservation.

These price adjustments are general across the economy and assets such as stocks also realise price adjustments. The ZSE has risen by 250% on a year-to-date scale, in nominal terms, largely in line with the depreciation of the local currency.

This movement would have largely been in line with Zimdollar inflation had it been published as before. ZIMSTAT changed its computation model to reflect blended inflation as the official inflation. It is likely that the stock market will continue to face volatility in line with the depreciating currency.

Government has announced some measures to stem the decline but these come short of tilting the direction in position trajectory.

-Equity Axis News