ZSE Drops $2.7b In Two Days As Investors Panic-Sell Shares Amid Political Uncertainty

To understand what the $2.7 billion drop means we first have to look at the events preceding the not coup coup

Historic performance on the ZSE

Just two weeks ago we were celebrating as the Zimbabwe Stock Exchange market capitalisation hit $15 billion for the first time ever. Okay, celebrating is not really the right word, we were intrigued.

We were not celebrating because we knew the reason for the historic performance. It was panic-buying. The cash crisis compounded by the insistence by the RBZ that the bond note be pegged at 1:1 with the USD left people with no other options to preserve the value of their money.

It was telling in that it was the local buyers responsible for the increase in share prices as their demand increased whilst foreign investors were net sellers. The cash crisis we have discouraged foreigners and they were selling off their shares whilst locals who had no other choices were lapping them up.

This excessive demand led to the market being overvalued as it represented 90% of the country’s GDP but locals were not too worried about that.

After the military takeover (or whatever it’s called)

It was inevitable that the market would self correct as analysts predicted. The self correction came after the political uncertainty which came when the military took over.

The stock market lost $2.7 billion as market capitalisation fell from $15,12 billion in the previous week to close at $12,35 billion in the week ending 18 November 2017. The last two days of the week being particularly bad.

Foreigners accelerated the disposal of their shares with a net sale of $8.3 million in the week.

It is unlikely the market will recover before it is clear what the outcome of the political situation in the country will be. Analysts expect that the market capitalisation will continue to drop even when the political situation is resolved because even after that, the economic recovery plans would have to be clear too.

So the question becomes, ‘what are Zimbabweans doing to preserve the value of their money?’ The cash crisis is still there and if the stock exchange is no longer an option for many, what are they doing now? I know that it is the minority who actually have enough left over to save. For most of us it has been hand to mouth for years now but we would like to know what options are there to preserve the value of our monies.

We talked a lot about market capitalisation and if you do not understand what that means click here to read an explanatory article.