Market: What hides the almost 800% rise in 2023 on the Zimbabwe Stock Exchange

(BFM Bourse) – According to Bloomberg, the Harare Stock Exchange is up more than 780% since the start of the year, showing the strongest growth of any stock exchange in the world. Local investors feed the market upside down by putting their money in stocks and using them as a hedge against inflation.

Even the Nasdaq and its 32% year-to-date rise, boosted by enthusiasm around generative artificial intelligence, is clearly not keeping up. According to Bloomberg, the biggest rise of all the world’s stock markets has to be attributed to… Zimbabwe. Since the beginning of the year, the Harare stock exchange has risen almost 800% (782%, variation in Zimbabwean dollars), according to figures released by the news agency on Monday.

A look at the price of the “all shares” index in the Zimbabwean market confirms this order of magnitude. However, the local market capitalization remains modest, around $1.8 billion (US), according to Bloomberg, or about four times less than the CAC 40’s smallest, Unibail-Rodamco-Westfield. All with 55 groups listed.

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Inflation not far from 200%….

This performance is not due to a sudden recovery in the local economy, the International Monetary Fund expects only a 2.5% increase in gross domestic product in real terms this year.

On the other hand, this stock market surge is not unrelated to the mega-inflation that is ravaging the country, with prices rising nearly 176% over a year in June, according to Reuters.

In fact, there is a phenomenon that also exists in Turkey, another country ravaged by high inflation, but whose local stock market is up 153% since January 1st. The stock markets act as a safe haven for Zimbabweans to protect their savings against rising prices.

The gain is due to “the whole search for an inflation hedge (…) for local investors, who have little confidence in the local currency and do not have easy access to US dollars”, explains Bloomberg Hasnain Malik, emerging markets specialist at the Dubai-based research firm Teller.

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Because of inflation, Zimbabweans therefore show some distrust of the local currency, which is not accepted for many purchases such as real estate, cars and even fuel.

“So all the Zimbabwean dollars will go into the stock market,” Tatenda Nemaungwe, a trader who quit his job as a financial adviser five years ago to become an investor, told Bloomberg. The latter assures the American press agency that he now earns an average of 10 times more than his previous salary per month, thanks to the rise of the local stock market.

Researchers from the University of Bindura, north of Harare, had already, in a study published in 2009, identified this behavior of “hedge strategy” on the part of the local population. Between 2002 and 2007, despite the deterioration of the economy, the stock market clearly prospered.

The rise of Zimbabwe’s stock market “was mainly driven by speculation, with investors trying to hedge against hyperinflation. The slowdown in the Zimbabwean economy during this period caused a flight of capital to the stock market, pushing up prices and leading to huge profits,” they said.

Julien Marion – ©2023 BFM Bourse

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