Hedging headlines local bourse in 2021

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IN A year many thought would see a return to “normalcy” on the Zimbabwe Stock Exchange (ZSE), indiscriminate hedging continued on the local bourse, as inflation remained high.
The stock market, which has rallied on inflation for over half a decade, gained more than 270 percent in 2021, as the country’s inflation maintained a top-three global ranking throughout the year — in the company of Venezuela and South Sudan.

Zimbabwe’s inflation fell from 838 percent to 349 percent between July and December last year under the Reserve Bank of Zimbabwe’s strict monetary targeting framework. This got some analysts talking about a “return to normalcy” in 2021.

But as inflation continued to decline – reaching 50 percent in July 2021 – the ZSE All Share Index climbed on, gaining more than 150 percent during the seven-month period.

This was despite warnings from analysts that the market was getting overvalued.
Analysts at First Mutual Wealth said despite the generally improved fundamental performance of listed companies as indicated from the first cycle of published results in 2021, “a number of ZSE- listed companies, particularly in the small and medium cap segment, may now be overvalued”.

Fincent Securities also chimed in: “including the heavily capitalised ones” are now trading at a premium to the net asset values.”

“One would ask what has changed to justify such lofty valuations. Is 2021 is any better than 2013? Certainly not. The period 2009-2013 remains one of the best years marked by real growth, massive capital investment and general optimism.

“What we are experiencing right now is arguably closer to what happened in 2008 where investors that flocked to the stock exchange sought to preserve value for their earnings not caring much about the fundamentals of the businesses that they are investing in,” the equities firm said in a note in July.

A market correction came in August, with the local bourse shedding three percent, but this was to be short-lived as the market gained 29 percent in September after inflation increased for the first time since January, driven by foreign currency disbursement delays on the central bank’s auction system.

Inflation rose to 52 percent in September, as the ZSE put on $203 billion to end the month at a record $1,04 trillion.

“The escalating trajectory has been fuelled by value chasing as the premium between formal and parallel currency markets worsen,” Equity Axis said in a note then.
“The premium between the formal currency market and the parallel market is now almost 100 percent as the magnitude of loss on the formal market widens further,” the research firm added.

On the official market, the ZWL had also depreciated for 22 consecutive weeks.
Inflation continued to rise, climbing to 54 percent in October, and again to 58,4 percent in November.

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