Is Old Mutual telling Zimbabwe that something is wrong?

Going forward it continued to trade significantly higher on ZSE relative to other exchanges, especially starting from the month of October.

This corresponds to the period in which the central bank indicated that it would go ahead with injecting bond notes into the economy.

At the height of Zimbabwe’s hyperinflation, which ended in February 2009 when the country dollarised, the bulk of transactions between the fast-devaluing Zimbabwe dollar and other currencies, primarily the US dollar, were calculated using an Old Mutual Implied Rate.

This market-driven rate used the price of the Old Mutual share on the LSE against the corresponding price on the ZSE.

Analysts said they are using the Old Mutual implied rate as a gross indicator to measure how Zimbabwe assets are overvalued,

“The Old Mutual implied rate is telling us that Zimbabwe assets are very overvalued , we are a putting a premium because of currency risk. So if we want to see the real value of our assets, we can use that implied rate to deflate their nominal value,” an analyst said.

Another analyst said they are using the Old Mutual implied rate to discount the prices of a shares in Zimbabwe to ascertain their prices in real terms.

They believe that the share prices quoted on the ZSE are in nominal value, as such, applying the implied rate will give a fair value in real terms.

“Some are using it for valuations for example one can use it to find the real value of our market capitalisation at $10 billion,” said an analyst.

Analysts said the huge difference between the multiple-listed Old Mutual on the Zimbabwe Stock Exchange, London Stock Exchange and Johannesburg Stock Exchange indicates that bond notes are losing value against the greenback, despite being officially pegged at par with the US dollar.

Critics lay the blame on excessive issuance of treasury bills (TBs) by the Zimbabwe government which has led to the creation of phony money through the RTGS system.

“The implied rate points that something is wrong. It tells us the rate at which the government is fueling money supply growth, because what the share price is telling us is that someone is willing to buy it at that ridiculous price irrespective of its fungibility,” said an analyst.

“When you compare with other efficient markets, such huge premium which gives arbitrage opportunity, indicates that there are serious economic problems and in our case it’s coupled with inflationary expectations,” he said.

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