Published by the government of Zimbabwe
24 June 2008
Harare — Equity prices doubled to new highs last week amid a craze of rising inflation and falling deposit rates.
Official inflation statistics are the unattainable elixir of Zimbabwe's economy, and so economic agents have resorted to guesswork, which you can call speculation. Now this is the monster that has fuelled the fire on food prices, foreign exchange rate, and inevitably, the Zimbabwe Stock Exchange.
Last week, the mainstream industrial index rose by more than 120 percent week-on-week to 5 160 207 611 002.74 points on Thursday, its highest level yet -- purely because of speculation, inflation hedging so to speak.
Minings rose much slower, posting a growth of 80 percent to 4 984 897 942 971.32 points from a week earlier, and all factors are pointing towards continued upside.
The market rose again in early morning trade on Friday led by increases in RioZim and other second liner shares. The heavyweights like Old Mutual, Econet and Delta reported slim increases of between two percent and seven percent.
On Thursday, average daily ZSE turnover reached $30 800 trillion compared with $7 000 trillion the week before. Total market capitalisation rose towards US$4 billion.
On a year-to-date basis, the main index has risen by more than 280 000 and minings are up in excess of 210 000 percent.
Annual inflation was last measured at 165 000 in February, according to the Central Statistical Office. Market estimates are around 1,7 million percent.
During the review week, the Reserve Bank threatened to cancel dealing licences for commercial banks it accused of colluding with external forces to fix the rate of exchange.
There have been indications banks were not allowing the market forces of demand and supply determine the exchange rate.
As a result, rates fell at close on Thursday with the local unit trading at $7 billion against the US dollar from high as $10 billion.
The equities traded mixed in the review week. Industrials opened up 35 percent on Monday and added another weighty 79 percent on Tuesday. The index lost a marginal 0,04 percent at midweek, and was down again 6,5 percent on Thursday on slow profit taking.
Minings rose 36 percent on Monday and gained 44 percent on Tuesday. The index lost below 1 percent on both Wednesday and Thursday. Of the index shares on Friday, second-tier shares gained most, and fell sharply too. TA Holdings led advancers rising 33 percent. Redstar and Tedco rose 25 percent apiece while property firm, Pearl Properties added 24 percent. Astra paced decliners falling 30 percent followed by Starafricacorporation, which slid 29 percent. CBZ, Gulliver and Seed Co lost between 14 percent and 20 percent. In mining, RioZim gained 25 percent. All other counters traded unchanged.
For the past three weeks, the share market ran amok, and provided little signs any such hyper-activity will come to a halt soon. Investors took profits on selected days but only a fraction of the overall ZSE value, which averaged 10 percent per day versus daily increases of up to 100 percent. It is difficult to have a clear-cut direction for the stock market in current trends, but attendant economic fundamentals favour a continued rally. Low interest rates, which have been suppressed by continued surplus positions on the money market, which also play to the equities favour going forward.
As has been said over and over again, the ZSE has been the investors bet against inflation. As such, weak inflation forecast will help stock prices hit roof level, in the medium term.
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