. . . but ZSE has other ideas
If all you looked at is the performance of Zimbabwe Stock Exchange-listed stocks in October, there would seem there’s nothing much to worry about.
All indices pointed north, with the ZSE Top 10 index the top performer, having recorded a 42,41 percent gain. The mining index had the lowest monthly gain although on the face of it the 32,71 percent gain was very strong.
If we were to restrict ourselves to these nominal figures this is one of the best monthly performance in the whole world. If investors didn’t know better, they would be drooling over the ZSE, wishing they were invested there.
Why not when stock markets across the globe saw red. They are even calling it “Red October” or a “Horror Month” as stocks endured their worst October since 2008.
In America, the S&P 500’s performance in October is the worst since the 2008-2009 financial crisis. Both the Dow and the Nasdaq have endured major losses.
The broader S&P 500 lost nearly 7 percent in October, its worst month since September 2011. The Dow lost 5 percent and this hasn’t happened since January 2016.
October selling was not limited to the US, with Chinese stocks plummeting and the MSCI All-World index dropping about 10 percent. Hong Kong’s Hang Seng tumbled 10 percent. China’s Shanghai Composite lost 8 percent in October, sinking deeper into a bear market. Italy’s benchmark, dogged by political headaches, shed 8 percent as well. The MSCI EAFE, an index of stocks in 21 developed markets excluding the United States and Canada, dropped 9 percent.
According to Bloomberg global equities erased about US$8 trillion in market value, the largest monthly wipe-out since the financial crisis. US markets lost nearly US$2 trillion in October.
For this rout, analysts point to three things.
In the US in particular, the biggest concern for investors is more interest-rate increases and lower bond prices which are expected to ultimately bring the US economy to a halt.
Then there is the potential negative impact of President Donald Trump’s trade war, which by some measures is already starting to hurt the domestic economy.
Another factor for the markets is the slowing Chinese economy as well as high oil prices which tend to stunt economic growth.
ZSE Market Volatility
However, as global stocks saw red, ZSE stocks recorded double digit growth. The ZSE’s market capitalisation added approximately $6 billion to $ $17,9 billion while the ZSE main industrials Index put on 42 percent to 549.81. Only three stocks closed the month in the negative.
To determine whether or not recent market rally is worth a cheer, it is well to view the economic landscape for “clues” for what might be driving it.
The biggest of these concerns is foreign currency environment. As a result, the double digit growth rates are a result of investors and risk averse individuals only trying to hedge against value eroding vagaries such as currency volatility.
RTGS or bank balances are trading at a huge discount to real US$. For every US dollar, one has to part with at least $3 in the bank, something that presents a real challenge for stock valuation.
The currency distortions present a challenge to the pricing model that analysts use to value stocks.
The higher the gap between real US dollars and “RTGS dollars”, the higher stocks must go but on the ZSE shares seem to have lagged with prices increasing at a lower rate than exchange rates.