THE Zimbabwe Stock Exchange (ZSE), famously known for enriching every investor, who participated in trades in 2020 and 2021 respectively, took an unexpected turn in 2022 through what seemed like a “Ponzi” scheme as it reclaimed its gains back from investors.
However, a few “lucky” investors stumbled on yet another block of positive returns from the bourse in real terms. These are investors, who typically “picked right”.
The overall ZSE went up by 80% in 2022, buttressing the 311% surge recorded in 2021. However, these are nominal gains expressed in the highly volatile Zimbabwean dollar. Therefore, the magnitudes are subject to inflation and currency depreciation, which have been rampant since 2020. Due to limited options amid Covid-19-induced lockdowns, more players on ZSE meant more demand and more activity.
Resultantly, stock prices movement outpaced inflation and currency depreciation in 2020 and 2021, with the market recording over 400% gains in United States dollar (USD) terms in 2020 followed by an over 100% surge in 2021. In 2022, while the ZSE All Share Index closed at an annual surge of 80%, annual inflation closed at 243,8%, which is more than three-folds the magnitude of market returns.
At the same time, the local trading currency, the ZWL, had depreciated by -84% against the USD after the exchange rate moved by 518% from ZW$108666 to ZW$671447. As a result, in USD terms the ZSE succumbed to a loss of -74% in 2022, halting the growth trajectory effected in the prior years. The ZSE once hailed as a safe haven against inflation fell to its knees in 2022 as annual inflation led the race.
However, on the upside, a few picks on ZSE performed ahead of inflation and these required a third eye from investors as opposed to the traditional hoarding of any and every available stock as witnessed in the past two years. Out of the 48 active stocks as at December 31, 2022, eight counters capped the year ahead of the annual inflation of 243,8%.
These were African Sun (283%), Axia (270%), First Capital Bank (356%), CFI (340%), GetBucks (263%), Innscor (340%), NMBZ (368%) and RioZim (250%). The financials sector dominated the highest number of outliers in the year while the overall sector emerged the second best performing on ZSE after consumer discretionary on notching 105%.
The banking and financial sector is highly regulated and thus highly corelates with Zimbabwe Reserve Bank policies. This means the sector relies on the RBZ to safeguard their operations from severe macro-economic challenges. Nonchalance from the central bank amid an economic crisis, which involves inflation heavily weighs on the book performance of the financial sector, and thus lose investor interest.
Rampant inflation in 2020 and 2021 led to speculative borrowing, which benefitted borrowers through arbitrage at the expense of lending institutions due to the high level of currency depreciation at the time. Therefore, all highly liquid firms were under severe attack from value loss. Subsequently, the financial sector emerged the worst performing sector on ZSE in 2020 and 2021.
In the second quarter of 2022, the government drew some controversial policies aimed at preventing speculative borrowing among other targets. Meanwhile, banks were also restructuring operations to move from the traditional core business of lending and depending on deposits in a bid to strengthen operations.
This saw the revamp of the sector in 2022 and thus investors who had placed their cards on the recovery of the sector following strategic measures walked out of 2022 with heavy cheques out of their portfolios.
As we approach a highly volatile economic terrain in 2023, fuelled by historically controversial presidential elections, strategic picking of a well-positioned sector should be the new norm, outpacing the common speculative trading that had become every investor’s survival technique.
- Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, Twitter: TWDuma_