The Zimbabwe Stock Exchange index has shed 15.73% of its value in the year 2019. The country has been through a lot in this short year and signs continue to suggest that there is more to come. I previously wrote about the foreign exodus from the ZSE due to the currency confusion that existed after the October 2018 admission that the parity between the US dollar and what we now know as the RTGS$ was untenable.

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Registering a jump in January to 537.21 points, this coincides with the shutdown period after protests rocked the country due to a fuel price increase that added to a great number of mounting concerns over the economy. From that point on the index has been on the decline. Recent weeks trading show this trend may have been bucked for now.

Possible Causes

The plausible explanation for the tumble in ZSE shares is the introduction of the RTGS dollar and the effect that it had on business. There are two things to consider when it comes to these listed companies which likely have significant foreign dealings.

The introduction of the RTGS dollar immediately converted all locally domiciled assets and liabilities to RTGS dollar from US dollars at the rate of 1:1. The RTGS dollar opened trade in the interbank market at 2.5 to the US dollar and now trades at 3.05. This undoubtedly downgraded the valuation of shares. Foreign assets and liabilities, however, were not changed by this policy.

Overall confidence in the economy is reflected in market prices of publicly traded shares. Between fuel price hikes, overnight value losses due to currency change, galloping inflation, and questionable government policy the signs are not good. For neither the foreign nor the local investor. So the reduction in value we have witnessed is a realisation of the value of the assets on the market. If we wade into the effect of the interbank exchange rate the pictures become even grimmer. The parity between the US dollar and the then Bond note made our assets very attractive. While foreign currency challenges had already been accounted for in the market through measures such as the Old Mutual Implied Rate the current situation further scares investors. Investors like risk but dislike uncertainty.

A precursor to this new monetary regime was, of course, the dropping of Zimbabwean domiciled shares and indices by S&P DJI which acted as a reliable tracker of Zimbabwean shares and brought a lot of foreign interest. Their decision to drop Zimbabwe because of lack of clarity in the monetary system as well as foreign currency access challenges was cause for a lot of investors to also divest from Zimbabwe.

Perhaps the worst is over.

Towards the end of March the index value settled at 494.89 points and has made minor gains in the period since then; perhaps signifying a market equilibrium of sorts.  Looking at it from a long term perspective the market has nearly doubled in value over the last two years.