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Zimbabwe's Stock Market Faces Turmoil as New Currency as ZiG Wipes Out 330% Stocks Rally
Mbeki edmond
Tuesday, April 23, 2024
Harare, Zimbabwe - The introduction of Zimbabwe's new currency, the Zimbabwe Gold (ZiG), has dramatically affected the nation's stock market, erasing a substantial 330% rally seen earlier this year. The ZiG, which replaced the rapidly depreciating Zimbabwean dollar on April 5, has shown a marginal gain of over 2% against the US dollar. However, this transition has led to a significant downturn in market activities.
Impact of ZiG on Zimbabwe's Stock Market
Since the implementation of ZiG, there has been a noticeable decline in both the volume of stock trades and the value of transactions. The Zimbabwe Stock Exchange (ZSE) experienced a drastic shift as stock prices were converted to the new currency unit, leading to a general market hesitance and a lack of understanding of the new value dynamics.
Justin Bgoni, CEO of the ZSE, highlighted several challenges that contributed to the market's decline. "The conversion process took about a week for the nation's lenders to implement, combined with tight liquidity conditions, severely impacted trading volumes," Bgoni explained.
The Securities and Exchange Commission of Zimbabwe observed that most capital-market participants had adjusted to the new currency, but the transition has still led to reduced earnings for many brokers. Lloyd Mlotshwa, head of research at Harare-based brokerage firm IH Securities, noted,
"The change has led to a significant decrease in average daily turnover, impacting liquidity and, consequently, the stockbroking industry."
Economic Implications and Future Prospects
With a significant portion of Zimbabwe's economy still reliant on US dollars, the shift to ZiG poses additional challenges. Experts suggest that adapting business models to this new environment is crucial for survival. Enock Rukarwa, a research and investment consultant at FBC Securities, advises,
"In light of these challenges, stockbroking firms need to rethink their strategies and possibly shift their focus away from commission-based income."
Imara Asset Management, Zimbabwe's largest independent brokerage managing over $100 million in assets, predicts further market adjustments.
"The transition could have been smoother had the ZSE converted to US dollars, aligning with the Victoria Falls Stock Exchange, especially since many businesses are already reporting and paying dividends in US dollars," stated John Legat, CEO of Imara.
As the market continues to adjust to the ZiG, stakeholders remain cautious but hopeful that stability will return as the new currency finds its footing. Investors and financial analysts alike are keeping a close eye on developments, hoping for a return to a more robust and stable economic environment in Zimbabwe.