Blue-chip stocks lift ZSE

LIVINGSTONE MARUFU

Blue-chip counters Delta Corporation and CBZ Holdings have spearheaded a sharp recovery on the Zimbabwe Stock Exchange (ZSE), driving a more than ZWG17bn rebound in market capitalisation since the exit of Econet Wireless Zimbabwe, as investors flock to a shrinking pool of heavyweight stocks amid tight monetary conditions.

The ZSE’s market capitalisation rose to ZWG98.5bn yesterday from ZWG81bn on April 1, when Econet, formerly the exchange’s largest listed company and one of its most actively traded counters, delisted from the local currency bourse.

The rebound underscores how capital has become increasingly concentrated in a handful of heavyweight stocks following Econet’s departure, with Delta emerging as the principal beneficiary alongside CBZ.

The rally has divided market participants. Some argue it reflects a flight to quality by institutional investors seeking protection in resilient companies, while others attribute the gains to a modest increase in Zimbabwe Gold (ZiG) liquidity following government payments to suppliers in local currency.

“The recovery to ZWG98.5 bn is primarily the result of Delta’s heavyweight effect,” Morgan & Co investment analyst Tarisai Makuni told Business Times.

“Large companies that remain on the exchange, particularly Delta and banking groups such as CBZ Holdings, have recorded substantial valuation gains. Investors are concentrating capital in the few highly resilient and liquid assets still available.”

Makuni said the rally reflected market structure rather than abundant liquidity.

The Reserve Bank of Zimbabwe’s tight monetary stance has kept ZiG liquidity constrained, while exchange controls limit institutional investors’ ability to convert local currency holdings into US dollars.

“Rather than holding cash that risks losing purchasing power, pension funds and asset managers are deploying available ZiG into blue-chip equities,” she said.

“With only a limited number of quality companies remaining on the exchange, even relatively small buying flows can produce outsized gains in share prices.”

She expects the trend to continue in the near term as investors adopt buy-and-hold strategies, although smaller, less liquid counters are likely to remain largely overlooked.

Enock Rukarwa, equities dealer and analyst at FBC Holdings, offered a different explanation, pointing to an increase in local currency liquidity over recent weeks.

“There has been a noticeable increase in ZiG liquidity over the past three to four weeks,” he said.

“Government payments to contractors in local currency, together with liquidity generated through surrender requirements, have increased the amount of ZiG circulating in the economy. That has helped support demand for equities.”

He said the additional liquidity had also coincided with a weakening of the parallel exchange rate from about ZiG30 to around ZiG33 against the US dollar.

“The Reserve Bank’s introduction of ZiG-denominated fixed-term instruments is intended to absorb some of that excess liquidity,” Rukarwa said.

Despite the recovery, analysts warned that the ZSE’s longer-term outlook remains clouded by structural challenges.

The continued migration of companies to the Victoria Falls Stock Exchange (VFEX), where businesses can raise US dollar capital and tap a broader international investor base, continues to erode the depth of the domestic market.

The steady stream of delistings, coupled with the absence of meaningful new listings, has left the ZSE increasingly dependent on a small group of blue-chip companies to sustain valuations.