ZSE wipes off ZWG3.2bn in market value

SAMANTHA MADE

A brutal ZWG3.2bn has been wiped off the Zimbabwe Stock Exchange (ZSE) since the start of the year, as the twin blows of tight monetary policy and weak Zimbabwe Gold (ZWG) liquidity, compounded by company-specific woes, hammer investor sentiment and drag stocks into a downward spiral.

At the heart of the downturn is the constrained circulation of Zimbabwe Gold (ZWG), which now accounts for only about 20% of the country’s money supply. This has led to a dramatic slowdown in stock market turnover, significantly weakening demand and giving buyers overwhelming bargaining power,  a dynamic that is accelerating the decline in share prices across the board.

“The ZSE’s market cap has trended lower since the beginning of the year because of (1) the tight monetary policy’s impact on ZWG liquidity and local businesses and (2) company-specific issues,”  Tafara Mtutu, Head of Research at Morgan & Co said. “ZWG circulation is currently limited, accounting for only 20% of money in circulation, and this has cascaded onto the ZSE which has seen low turnover.”

Mtutu added that the illiquidity is depressing valuations and feeding into the wider economic malaise, which is characterised by subdued consumer spending and shrinking corporate earnings.

“Given such an environment, buyers tend to have the bargaining power and this often results in share prices trending lower as is the case now. The restrictive economic environment has resulted in sales and profits in some listed companies dropping in response to low aggregate demand. This has warranted the decline in stock prices,” Mtutu explained.

Beyond monetary constraints, Mtutu noted that company-specific weaknesses have added fuel to the fire, further weighing down valuations.

“Some companies have been battling specific issues that have seen their market capitalisation decline regardless of monetary policy. It’s mostly liquidity constraints. Buyers have the advantage and they push prices lower so that they purchase shares at good prices,” he said.

Mtutu pointed to struggling counters such as Tanganda and ART Corporation, which have underperformed due to weak operational results, as well as structural changes at Ecocash Holdings, including shifts in management and shareholding, that have unsettled investors. He also cited OK Zimbabwe and Meikles as companies facing internal headwinds that have contributed to the decline in overall market capitalisation.

Echoing these sentiments, investment analyst Enock Rukwara, who said the lack of ZWG liquidity is the primary driver behind the bearish mood gripping the local bourse.

“ZWG liquidity has been the major cause of the overall bearish sentiment on the stock market. Total broad money supply in the economy is around ZWG$87 bn, of which only 17% is in local currency. Resultantly, the cake filtering to the stock market is small,” Rukwara said.

He added that the complexities of settling trades in foreign currency — particularly the US dollar — have distorted price discovery and placed downward pressure on stock valuations.

According to Rukwara, the outlook remains bleak under current policy conditions.

“A decline in market cap signals that stock market prices are falling, which in turn decreases respective portfolio valuations. On the backdrop of a contractionary stance being pursued by the government for both fiscal and monetary policy, we may continue to see depressed activity on the stock market,” he warned.

The tightening policy stance, introduced by authorities to combat inflation and stabilise the local currency, has instead strained productive sectors, shrunk liquidity, and triggered unintended consequences in capital markets.

The Reserve Bank of Zimbabwe’s decision to back the ZWG with gold and foreign currency reserves has added some credibility to the currency. However, its slow adoption and limited circulation — exacerbated by a deep-seated preference for the US dollar among businesses and consumers — have restricted its effectiveness in stimulating stock market participation.

As a result, many institutional investors are taking a cautious approach, avoiding large allocations to equities in favour of hard currency holdings or offshore opportunities, further draining liquidity from the ZSE.

With the ZSE’s market capitalisation slipping fromZWG65.36bn  at the start of the year to ZWG62.16bn this week  , analysts warn that without a material shift in economic policy or a significant injection of liquidity into the financial system, the bearish momentum could persist, eroding more value from already bruised portfolios.

For now, investors are left navigating a market where confidence is fragile, cash is scarce, and price discovery has become increasingly distorted — a situation that is unlikely to change unless the economic fundamentals shift meaningfully in the months ahead.