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Zimbabwe Stock Exchange now overvalued but bull run to continue

The rising RTGS balances, compared to USD cash and Nostro balances have pushed up premiums on dollar notes, driving inflationary expectations.

“The real reason is that we are anticipating a high inflationary environment, so for you to protect yourself against an inflationary environment, you need to hold real assets, that’s why there is now demand for real assets like equities,” said the analyst.

“The creation of money is very high at the moment, so investors are running away from holding monetary assets to real assets, thereby creating the demand which is pushing share prices upwards.

“The problem with money markets investment is that their returns will be chewed by inflation, but with shares investors preserve value, and can be liquidated at a later date in the long run at a price which reflects the inflation rate at that time.”

Some analysts said corporates are now turning to the stock market in order to hedge themselves against the potential risks associated with sitting on top of excess cash in banks.

“Corporates are being paid large amounts by the government through treasury bills or by RTGS. So rather than holding on to large RTGS balances, they turn to either equities or properties, but most of them are going for equities because of issues of divisibility as equities allow them to diversify their portfolio compared to properties where you commit larges amounts on a single asset,” an investment analyst said.

The RTGS balances are also difficult to liquidate, analysts say.

Last week ProPlastics finance director, Pascal Changunda said it often takes up to three months to liquidate RTGS balances, stretching their resources to the limit.

Foreign investors, on the other hand, are pulling out of the local bourse in droves and remain net sellers in the year.

Notwithstanding the difficulty in remitting sale proceeds, driven by Nostro pressures, foreign investors are opting to sell and reserve better positions in the remitting queue.

“Foreigners are considering that even if they are to wait in the queue for months to receive their proceeds, they will eventually get paid in US dollars when their turn comes …. and there is also fear that the ongoing bull run might retrace if the uncertainty driving the market cools down,” an analyst said.

The central bank last week said it had set up a $5 million Zimbabwe Portfolio Investment Fund to repatriate funds to foreign investors specifically on the Zimbabwe Stock Exchange (ZSE), a development meant to restore confidence in the market.

As at June the country had a backlog of $75 million in dividends and proceeds from sales that were owed to foreign investors.- The Source

 

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