The local equities market has been experiencing sell-off pressure since late last month, a move analysts say is a “self-correction” driven by currency and exchange measures announced in February’s Monetary Policy Statement.
The sell-off has seen the Zimbabwe Stock Exchange (ZSE) shedding off at least 10.16% in total market capitalization to $15.98 billion.
As at the close of trades on Monday, the ZSE’s major equity gauges were all pointing southwards.
The linchpin All-Share Index was down 9.09% to 121.56, the lowest since last October, following loses continued losses in Cassava Smartech, which was down 20.21% to RTGS$1.00 and Econet Wireless Zimbabwe Limited, down 20.93% to RTGS$1.00.
The Top 10 Index and the Industrial Index were down 9.21% and 11.83% respectively to close the week at 113.32 and 404.89 while the Mining Index remained unchanged at 201.72.
Analysts at Akribos Research Services say the fact that the beginning of the sell-off coincided with the announcement of the Monetary Policy Statement by Reserve Bank of Zimbabwe governor Dr John Mangudya is indicative that investors have taken guidance from the currency and exchange reforms.
“The market sell-off which has accelerated since the 2019 Monetary Policy Statement announcement has reversed market gains to October 2018 levels. The All Share Index closed the day at 121.80 points yesterday, 4.86% above the October 1, 2018 figure of 116.16,” said analysts at Akribos.
“We have always believed the market was overvalued both considering the Buffet Indicator (Market Cap to gross domestic product of 103% as recent as February 2019) as well as when compared to regional market PEs (Zim 24x vs e.g Egypt 9.83x, Kenya 12.91x), and have previously hinted at a self-correction.”
Last month, the RBZ floated the exchange rate between the local currency and the United States dollar, effectively abandoning its insistence that the two were at par.
While presenting the MPS Dr Mangudya also announced that RTGS balances, bond notes and coins were now a currency within the multi-currency basket the country is using, that will be referred to ‘RTGS dollars’.
The exchange rate had been floated through the introduction of an inter-bank foreign exchange market.
The analysts continue:
“In our view, the market continued on an upward trajectory since October 2018 on expectations of a devaluation of the RTGS. The separation of the Nostro FCA and the RTGS FCA (despite the RBZ governor insisting on 1:1 exchangeability between the USD and the RTGS) was the first clear sign that the two were not the same.
“Stocks became a safe haven for value preservation at a time when property (another value preservation strategy) was now quoted in USD, which was beyond the reach of most institutionals.
“We also believe demand for stocks was driven by speculative behaviour at the advent of inflationary pressures. In our view, the establishment of the interbank exchange market (hence the falling away of 1:1) and the introduction of the RTGS$ as the base currency of Zimbabwe during the 2019 Monetary Policy Statement gave further clarity to investors regarding the sticking currency issue.
“We have seen selling pressure from foreign investors in the major stocks (Delta, Econet, Cassava, Innscor), to buy into Old Mutual.”