THE Zimbabwe Stock Exchange (ZSE) All Share Index was on an upward trajectory for the greater part of the year breaching the 292-point mark before slowing down towards the end of the year, closing at 217.58 points.
Market capitalisation rose by 125% nominally, (31% in real terms). The growth in the market capitalisation was also affected by the delisting of Bridgefort Capital in preparation for a Victoria Falls Stock Exchange (VFEX) listing and Edgars Stores Limited’s transfer to the VFEX.
The index’s performance reflects prevailing market sentiment, where equities are increasingly used as a hedge against inflation. The overall trend on the ZSE shows a strong correlation with movements in the Zimbabwe Gold (ZiG) parallel exchange rates and rate premiums.
The ZSE All Share Index and the exchange rate are both influenced by inflation which explains the strong positive correlation. When inflation is high, investors move ZiG into stocks, expecting returns that outpace inflation and protect against a weakening currency. This surge in demand pushes the All Share Index higher, linking it to exchange rate movements. The correlation between the exchange rate and the ZSE All Share index has become a driver of the short-term investment strategy of inflation hedging.
However, going forward, the aforementioned short-term strategy is not foolproof because it has elements of speculation and some of the bull runs emanating from this strategy lack supporting economic fundamentals that support the sustainability of the price movements. Additionally, some counters are highly illiquid and sharp price movements can occur without enough trading volume to exit positions efficiently. Stability in the currency boosted investor confidence as the economy experienced modest deflation from May to July.
After the month of July, the forex premium started to rise leading to speculation of the new currency that led investors to move local currency capital to the stock market expecting positive real returns emanating from movement in the exchange rate premium.
This was the case as real returns were positive for the All Share index despite the depreciation of the ZiG in the parallel market. Their illiquidity continues to limit investor interest, leading to low trade volumes and minimal price discovery in this market segment. Liquidity constraints played a significant role in the drop of the ZSE All Share Index at the end of 2024, as limited access to capital reduced overall trading activity and dampened demand for equities.
The illiquidity, caused by a tight monetary policy, currency devaluation, and limited market funding, posed significant challenges for investors.
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The currency devaluation made it difficult to maintain buying pressure as investors could buy fewer shares for each ZiG held, resulting in declining stock prices across various counters. Should the government implement measures to enhance liquidity, such as easing monetary restrictions and fostering a stable financial environment, demand for equities is likely to pick up.
In 2025, investors should exercise caution during bull runs, price movements may sometimes be unsustainable due to a lack of underlying economic fundamental support. While market rallies can create excitement, not all gains
are backed by solid earnings growth or sound business performance. Consequently, a disciplined approach is essential to avoid overexposure to inflated valuations that could result in significant losses when market corrections occur.
Moving into 2025, Akribos maintains a cautiously optimistic market outlook contingent on the government’s lax over-regulation and consistency in policy declaration and implementation. The lax could result in a lighter regulatory approach for businesses and markets, creating a more favourable environment for private sector growth.
Akribos Research Services is an investment banking outfit with interests in securities trading, transactional advisory and investment management services.
