Zimbabwe’s stocks are on a tear as investors seek refuge from the new bullion-backed currency that’s at a record low against the US dollar
The Zimbabwe Stock Exchange’s All Share Index, which trades exclusively in local currency, has risen 28% since August 28, when the ZiG started consistently losing value against the dollar. The index has surged 160% since it was rebased to a 100 when the unit started trading on April 8.
But instead of causing jubilation among equity traders, it has them worried. They see the surge as a return to the past and a reflection of deep-seated trouble in the currency markets.
“The stock market has remained largely correlated to the parallel market and injections of ZiG liquidity,” said Lloyd Mlotshwa, the head of research at IH Securities, a Harare-based brokerage. “It’s the same song on repeat.”
The ZiG, short for Zimbabwe Gold, which started trading at 13.56 at adoption now sells for 26 per dollar on the parallel market and 13.98 officially.
It has shed value against the dollar for 18 straight trading days, its longest losing streak since its debut.
The central bank attributes the “temporary shock” to “foreign currency supply and demand mismatches, as preparation for the summer cropping season” picks up, according to a post on X on Friday.
The southern African nation introduced ZiG, its sixth attempt at a functioning currency in 15 years, to build confidence in a local unit after its predecessor the Zimbabwean dollar lost more than 80% of its value against the US dollar this year.
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Its plunge caused investors to pile into stocks as a safe haven and hedge against surging inflation, leading to a more than fourfold increase in the stock market.
The current stock market rally is predominantly “a result of increased ZiG liquidity in the economy,” said Enock Rukarwa, a research and investment consultant at FBC Securities.
It’s also due to the parallel market “creating uncertainty signals in the investment market space leading to excess demand for hedge instruments like equities,” he said.
The central bank has instituted various measures to support the ZiG including a crackdown on street traders and pumping US$64 million so far this month into the market.
The injection will “effectively mop-up significant liquidity in the market,” Reserve Bank of Zimbabwe governor John Mushayavanhu said in an emailed last Thursday.
