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ZSE Capitalization Surge As Investors Seek Refuge

Market capitalization on the Zimbabwe Stock Exchange (ZSE) grew 64 percent in just a little over a week to reach ZWL$ 67 billion as at close of trading yesterday on the back of investors continuing to seek shelter in the equities amid local currency depreciation, 263Chat Business can report.

As at week ending 7 February 2020, market capitalization was at ZWL$ 43.35 billion.

However an increase in reserve money and inflation has prompted investors to sought refuge in the stock market.

“The major driver of this growth in recent weeks has been excess liquidity in the market. If you have noticed reserve money has really gone up and there is the issue of value preservation in which people are taking their money out of the banks into the stock market to preserve value,” financial analyst, Tapiwa Mangwiro said.

The Zimbabwe dollar depreciated around 16 percent against the American dollar on the parallel market last week worsening fears of further losses in value of the local currency.

This week, RBZ Governor, Dr John Mangudya outlined that market uncertainty and inflation in the economy are largely being driven by an anticipation of future inflation by market players.

“Most of the counters that are trading on the ZSE except a few blue chip companies are actually under-valued so because of this undervaluation when you have excess RTGS the stock exchange is one avenue you can use to preserve value or to hedge against inflation so that’s why there has been a bull-run on the ZSE,” another analyst, Victor Bhoroma said.

However, the growth in the ZSE capitalization is not to be construed to positive economic growth as currently most economic indicators are raising red flags.

Inflation is heightening, money supply has grown exerting more pressure on the exchange rate and aggregate demand is currently depressed.

In fact current market capitalization has plummeted in real dollar terms to around US$ 3.78 billion from 2018 levels of US$ 16.7 billion recorded in October that year.

“I do not see much in terms of economic growth that can actually push that growth in market capitalization so what it means is that it’s largely investors that are trying to hedge against inflation. Then there is a lot of liquidity concentrated in the hands of a few companies as you have noted from the RBZ monetary policy. That means those companies might have run for the stock marklet rather than wait for Treasury Bills for them to invest,” Bhoroma added.

Despite the growth in capitalization, the All Share index retreated 9.14 points to close at 516.97 points with most blue chip stocks falling in the red yesterday.

Old Mutual Limited eased $ 4.63 to close at $ 50.36; Cassava Smartech was $ 0.2329 weaker at $ 3.6450 and Delta decreased by $ 0.1646 to settle at $ 8.4952.

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