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Zimbabwe: ZiG Cancels 330% of Share Recovery

Zimbabwe: ZiG Cancels 330% of Share Recovery

Zimbabwe’s new currency has cancelled out a gain of more than 330% on the stock market this year, leaving investors to deal with the consequences.

The Zimbabwe Stock Exchange’s all-share index has fallen by 99.95% since the introduction of the ZiG, short for Zimbabwe Gold, on 5 April. The ZiG, backed by gold, took over from the Zimbabwean dollar, which had lost 80 per cent of its value this year.

The volume of transactions and the value of transactions also plummeted as share prices were converted from the old currency to the new one.

Before the conversion, investors concentrated on shares, seeking refuge from the collapse of the local dollar and rising inflation, which in March reached a seven-month high of 55.3 per cent.

The Zimbabwean stock market offers few investment options for investors to protect themselves from volatile exchange rates and inflation. However, a soaring share price is usually cause for concern rather than jubilation, as it indicates that the next currency crisis is just around the corner.

Justin Bgoni, the bourse’s CEO, said that a combination of factors, including the long time it took for the country’s creditors to complete the conversion of Zimbabwean dollars to ZiG and tight liquidity conditions on the market, led to the bourse’s poor performance.

“In general, people are also hesitant and don’t understand what the value is in terms of ZiG,” he said on Monday by telephone.

Early winter

The decline in trading volumes has caused some brokers’ revenues to fall by at least 50 per cent, with most taking a “big hit in earnings”, said Lloyd Mlotshwa, head of research at Harare-based broker IH Securities. For brokers, the new currency has had a domino effect, resulting in a low “average daily turnover, which affects liquidity and then a knock-on effect for the brokerage sector,” he said.

Stockbrokers in the capital, Harare, said on Monday that they were experiencing “a painful start to winter”, marked by limited trading volumes on the stock exchange.

Their expectation is that the entire architecture of the stock market – and not just the stockbroking industry that depends on market turnover – will suffer. This includes custodians, government taxes and the ZSE company, which charges fees and commissions.

Imara Asset Management, the country’s largest independent brokerage firm, which oversees 100 million dollars in assets, also expects “some turmoil” over the next month, with the prices of shares converted to ZiG yet to find new levels.

“It would have been much wiser for the Zimbabwe Stock Exchange to convert into US dollars in line with the Victoria Falls Stock Exchange, especially now that many of the underlying listed companies are reporting in US dollars and paying dividends in US dollars,” wrote John Legat and Shelton Sibanda, Imara’s CEO and chief investment officer, in their April note.

Earlier this month, Mthuli Ncube, the Minister of Finance, told legislators that he hoped ZiG would end market volatility and also stabilise asset prices on the stock exchange. Since its debut, ZiG has appreciated by 2 per cent against the dollar.

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