Piggy has been consistent in his commentaries that the stock market in Zimbabwe has been looking cheap for some time. However, it is worth noting that there has been a significant change in economic fundamentals, particularly on the currency-front. For example, the official exchange rate has moved from 1:1 against the USD to I:25. This movement alone suggests that market capitalisation has declined in USD terms. Another phenomenon is that liquidity constraints on the local market have led to sessions of limited buying activity. Foreign investors have also been exiting the market given a plethora of risks (political, foreign exchange, consumer sentiment and repatriation risk). The recent suspension of the fungibility of dual listed stocks such as Old Mutual Limited, SeedCo International and PPC has also meant limited foreign participation. The Covid-19 shock has also impacted on global stock markets as most investors are opting to hold hard currency (USD) as opposed to equities.
Piggy opines that the Zimbabwe Stock Exchange (ZSE) has been a barometer of economic developments in Zimbabwe. The 2019 recession (Estimated GDP Growth of -7.1% in 2019) coincides with a significant slump in market capitalisation to USD1.9bn as illustrated in the two graphs below;
ZSE Market Capitalisation in USD Terms
Source: Zimbabwe Stock Exchange
Zimbabwe GDP Annual Growth Rate
Source: Trading Economics
Piggy notes that the ZSE Market Capitalisation has average USD3.8bn over the past 8 years since 2010. This implies that the market has halved to USD1.9bn. Generally, recessions occur when there is a slowdown in spending. Businesses become more cautious in their hiring and workers spend less and this leads to a fall in aggregate demand. However, there is nothing structurally broken about the economy when this happens; factories will still be in place whilst workers have the same skillsets. In other words, there has also been no fundamental changes in company business models. This suggests a perfect to BUY into distressed companies, special situations and underpriced stocks. The bottom line is Zimbabwe has just got cheaper! Get started in the exciting world of trading by making use of the article below;
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