In just over a month since Zimbabwe dropped the multicurrency system, investors on the Zimbabwe Stock Exchange have lost over US$2 billion, and brokers say the market is now at its lowest value since 2009.
If you were a theoretical cash-rich investor with a spare US$2.4 billion lying around, this is what you could buy in Zimbabwe, today: the country’s biggest brewer and Coca Cola bottler, which owns a Zambian business worth half a million US dollars, and at least half a dozen banks, including the country’s biggest lender.
You could also buy the country’s two largest supermarket chains, the entire region’s leading seed company, two large mines, the biggest dairy, and the country’s largest property holding companies. While at it, throw in the country’s two cement giants, producing a total of two million tonnes of cement a year, the two largest life insurance companies, and one of the biggest fast-food companies in the region.
Even the country’s largest telecoms firm, which has 11.5 million customers and basically controls the country’s payment systems, is an easy buy. While at it, why not throw in a company that has cleverly cornered the European crocodile skin market?
The market capitalisation of the ZSE, which broadly measures the value of shares on the stock market, stood at US$4.75 billion – measured at the interbank exchange rate – on Friday June 21, the last trading day before the gazetting of Statutory Instrument 142 on the morning of Monday June 24. The market is now valued at US$2.4 billion, after a decimation of value over the past two months.
SI142 banned the use of foreign currencies for local transactions, and also imposed a 90-day moratorium on the sale of dual listed stocks. The restrictions on fungible shares initially weakened demand in Old Mutual stock, used by investors to expatriate their earnings abroad as a substitute for scarce foreign currency on the formal market.
Although the Old Mutual share price took a dip in the days immediately following imposition of the 90-day rule, the stock has since rallied to new highs, trading at Z$21.36 on Friday, the last session before the holidays.
The ZSE has provided a haven for investors rushing to hedge against a negative economic outlook, marked by inflation of 175.66% and forecasts that the economy will contract by at least 2.1%. In July, the USD-Zimdollar midrate closed the month 38.71% higher, while the stock exchange was down 8.94% over the same month. The market had risen 8.62% in June, but the forex measures at the end of that month reversed the trend.
The ZSE’s all-share index is up 23% since the start of the year – lagging inflation – and the entire market remains undervalued.
2009 all over again
In local currency terms, Z$6 billion has been wiped off the market value since the currency measures came into effect late in June. However, the damage is most apparent when measured in US dollar terms. In a commentary for the month of July, brokers IH Securities said the values were the lowest in a decade.
“Anecdotally, current market capitalisation in nominal terms is Z$25.08 billion. Applying the interbank rate (at the end of July) of 8.9 this implies a market capitalisation of USD2.8 billion. The market in real terms has not been this low since the country dollarized in 2009,” IH Securities said.
The broker however says this means there are opportunities for investors to swoop on discounted stocks. “Intuitively, we believe that on a selective basis the market still offers some opportunities,” says IH, which has a buy recommendation on defensive stocks such as Econet and Cassava. Despite a dour outlook on disposable incomes, the broker has also a buy on OK Zimbabwe, which it believes has been oversold.
CBZ, the country’s biggest bank with assets of US$2.4 billion in 2018, is, by some estimates, trading at a discount of as much as 80% of its true value.
The government’s revenues and spending, in US dollar terms, also now almost match those from 2009, showing how the economy has now rapidly shrunk to the size it was a decade ago.
According to Treasury data in the mid term budget statement of August 1, revenue and expenditure figures for 2019, at Z$14.1 billion (US$1.57 billion) and Z$18.62 billion (US$2 billion), respectively, point to a reversion towards the 2009 figures. Government collected just over US$1 billion revenue in 2009 and spent US$1.36 billion.