·         ZSE takes a breather on Tuesday

·         Bull-run halted after 22 consecutive sessions

·         Panic sell-offs weigh on demand

Harare - On Tuesday, the 13^th of June, the Zimbabwe Stock Exchange (ZSE) halted a bull-run that had stretched to 22 consecutive sessions under which the market garnered 208% nominal gains. The mainstream ZSE All Share Index dwindled -1% on Tuesday, barely a week after the market announced an increase in circuit breakers from 10% to 15% on the overall market following a huge demand for stocks. The breather on Tuesday, therefore, took the market by surprise.

The ZSE has been hailed as a safe haven against inflation due to its historical record of outpacing inflation and exchange rate loss. Meanwhile, money supply has been growing exponentially in the first half of 2023, which drove up inflation and exchange rate depreciation. Consequently, prospective investors started dumping the excess ZWL into stocks as foreign hard currencies have remained insufficient to meet the demand levels for value preservation in the country. As the ZWL depreciated by -60% in May, the ZSE rose to a year-to-date return of 105% in May, which was the highest in the world at the time. In nominal terms, the ZSE surged by a staggering 161% in May alone to close at a nominal year-to-date return of 455%.

The positive trajectory extended into June, with the All Share Index garnering, in nominal terms, 68% gains by the 12^th of June, which is barely 2-weeks into the month. However, this translates to a loss of -18% in US$ terms according to the interbank exchange rate, which is the sole legal exchange rate in the country. On the other hand, based on the parallel exchange market the ZSE had succumbed to a -16% loss in US$ terms by the 12^th of June, 2023, from the beginning of the month. This has induced a panic-sell-off as investors fear losing more in real terms while sugarcoated by a nominal positive growth.

On a year-to-date basis, the market has dwindled from 105% at mid of May to a mere 6% by mid of June. The 84 percentage points decline in real terms has also aided in invoking panic in investors and this will likely drive sell-offs as investors strive to avoid a repetition of the 2022 bloodbath on ZSE recorded from mid-year to end of 2022. However, the country is currently short of investment options for ZWL holders, which may limit the pace of sell-offs. Since the greenback is considered the most viable and accessible safe haven in the country, a bear run on ZSE would considerably lead to a relatively measurable demand for US$’s on both the formal and the informal market. Consequently, this would further drive exchange rate loss in the second half of the year.

On the upside, based on the parallel market, the ZSE is performing ahead of the interbank market valuation, boasting of a 13% return in US$ terms. However, as the premium between the two currency exchange markets marginalize, the US$ returns on ZSE will continue to converge.

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