The market capitalization of the Zimbabwe Stock Exchange has fallen below the US$2 billion mark for the first time in 10 years. There is a lot that can be read into from this development as analysts have chosen to look at it from different perspectives. The most apparent issue is the movement in the exchange rate which has continued an upward trend but recently showed an acceleration in the rate of increase.

In local currency the total market capitalization (value of all the shares trading on the market) registered at ZWL$22 billion, the equivalent of US$1.98 billion at current prevailing rates on the interbank market. Contrast that with historical values playing between US$3-5 billion over the last 10 years since the commencement of the multi currency era.

The ZSE has faced many challenges owing to the complicated monetary system the country has operated under in the recent past, this made valuation complex. The move to a single monetary unit the Zimbabwean with a known and somewhat liberated exchange rate has brought some rationalisation to valuation on the market.

Along with the change in the monetary system also came changes to rules for disposal of shares with a 90 day vesting period being put in place. This move made the the ZSE unattractive particularly to foreign investors who would have to wait 90 days before receiving proceeds of the sale of shares. While the move was taken to prevent the use of dual listed shares such as Old Mutual being used to move money into and out of the country it has also come at a cost.

Overall the countries economy is contracting with forecasts of GDP decline for the year 2019. Challenges in the overall operating environment with energy sector shortages and depressed incomes have also lead to a sharp decline in aggregate demand. With the ZSE values failing to match both galloping inflation and exchange rate depreciation the market has become unattractive.

The decline represents an under valuation but with the challenges faced by the economy and a shying away of foreign investors it may stay that way for a while. Domestic investment is appetite is likely to remain low in light of the economy.