Bearish blues: ZSE faces prolonged slump as liquidity crunch bites

LIVINGSTONE MARUFU

Zimbabwe Stock Exchange (ZSE) investors are facing a bleak year ahead, with analysts forecasting a sustained bear run driven by tight Zimbabwe Gold (ZiG) liquidity and a restrictive monetary policy environment—despite recent liberalisation of the foreign exchange market.

Investment analysts argue that while reforms in currency trading may bring marginal shifts in sentiment, the lack of broad money supply will continue to suppress market activity and keep share prices subdued.

“The ZSE has always tracked the alternative market. It’s been an excellent proxy for money supply growth, which has historically been a key determinant of currency movements,” said Shelton Sibanda, Chairperson of the Association of Investment Managers of Zimbabwe and Chief Investment Officer at Imara Capital.

“Liberalisation will not have a direct impact on ZSE pricing dynamics. It should, hopefully, help some listed companies adjust their prices accordingly and maybe assist with top line growth.”

Sibanda noted that the ZSE delivered a relatively muted performance in the first quarter of 2025, remaining flat in real terms due to subdued activity. “Activity remains quite constrained, but the downside is now very limited in our view. This will continue whilst there is little to no ZWG liquidity,” he said.

In nominal terms, Sibanda said, the Zimbabwe Stock Exchange Industrial Index (ZSEI) declined by 5.7% in Q1 2025. In US dollar terms, this translated to a 9.1% drop using the official auction rate and 8.6% using the parallel market rate.

While the ZSE struggles, the Victoria Falls Stock Exchange (VFEX)—which trades exclusively in US dollars—has seen a notable uptick in activity. Sibanda said the VFEX All Share Index rose 5.0% in the first quarter compared to the same period last year, bringing its year-on-year growth to 8.1%.

Enock Rukarwa, an investment consultant, echoed Sibanda’s sentiment, saying the liquidity crunch would continue to limit investor returns.

“Liberalisation of the foreign exchange market does not necessarily influence stock market developments but the volatility thereof,” Rukarwa said. “The Zimbabwean stock market has primarily served as a hedging platform, and if liberalisation is not accompanied by a local currency crisis, the impact will be minimal.”

Rukarwa added: “Barring the liberalisation of exchange rates for formal retailers, ZiG’s broad money supply has not changed. No wonder why rates remain stable both on the alternative platform and interbank market.”

However, a more optimistic view came from Tafara Mtutu, an investment analyst with Morgan & Co, who believes there is still potential for a bullish turnaround, depending on how investors respond to the exchange rate liberalisation.

“It is likely that we may have a bull run because the bearish trend on the ZSE has been driven by the limited ability of investors to buy ZWG-denominated stocks,” Mtutu said.

He explained that while investors with US dollars were previously permitted to participate on the ZSE, they were required to transact at the official exchange rate, which was considerably weaker than the parallel market rate. This disincentivised investment and dragged prices lower.

“But since the liberalisation of the exchange rate, there might be a change in market sentiment in the coming days or weeks—mostly driven by a more liberalised exchange rate,” Mtutu said.

Analysts agree that many ZSE stocks are currently undervalued due to insufficient liquidity to support price discovery at fundamentals-based levels.

“The monetary authorities believe they have injected enough ZiG into the market, but at a granular level, people are hoarding it. That’s the main reason we’ve seen such low prices on the exchange,” Mtutu explained. “What could reverse this is an easing of monetary policy—that is the key driver of price movement on the bourse.”

Mtutu also highlighted the potential impact of sector-specific developments. “Changes in tax or regulatory policy could create opportunities for individual stocks, but overall, the market’s fate rests on monetary policy,” he said.

According to ZSE data, the total market capitalisation fell 5.02% in Q1 2025 to ZWG62.91 billion, down from ZWG66.24 billion at the end of the previous quarter. On a year-on-year basis, the decline is even steeper, with the ZSE shedding value from ZWG83.10 billion—a 24.3% erosion in investor wealth.

Market turnover also dropped 6.5% to ZWG973.45 million in Q1, down from ZWG1.041 billion in the previous quarter, reflecting waning investor appetite and diminished trading volumes amid the ongoing liquidity squeeze.

With no immediate monetary easing in sight, most analysts expect the ZSE to remain on a subdued trajectory—casting a shadow over hopes of a recovery in investor confidence this year.