Zimbabwe risks being removed from the S&P Dow Jones Indices (“S&P DJI”) as the country faces up to foreign currency shortages and inflation concerns that are driving its stock market bull run despite surviving the cull for now.
S&P Dow Jones Indices is the largest global resource used by investors, with over one million indices across all continents.
As at October 31, Zimbabwe had 18 companies that are part of a larger index — contributing to 12 S&P African Indices, with a total market value of $12,5 billion.
Consumer staples and telecommunication sector are the main contributors to the selected constituents in Zimbabwe, contributing 61,6 percent and 29,7 percent respectively.
These potentially include Delta, Econet and BAT, which have seen their share prices grow by 259 percent, 513,6 percent and 162,3 percent respectively in the year to date.
Companies must meet minimum size and liquidity requirements to ensure investability and tradability among other requirements,and those who fail to meet S&P DJI criteria will be ineligible for index inclusion.
S&P DJI had proposed to remove Zimbabwe stocks from its indices in September, citing foreign currency and inflation concerns but opted to keep them for now after consultations with investors.
“S&P Dow Jones Indices (“S&P DJI”) has conducted a consultation with members of the investment community on the potential exclusion of index constituents domiciled in Zimbabwe from a number of African Indices,” S&P DJI said on Tuesday.
“Following this consultation S&P DJI will continue to include Zimbabwe in its S&P All African Indices and Zimbabwean stocks will continue to be priced in USD at their official close prices from the Zimbabwean Stock Exchange. SPDJI will continue to monitor this situation closely.” it said.
A local analyst said Zimbabwean stocks are outperforming other African bourses but are not supported by fundamentals.
“Since they are are not understanding what is happening in Zimbabwe, the best way is to remove those stocks from their indices in order to give a true picture to investors on how African indices are performing,” said the analyst.
The ZSE has been on a record setting bull run which started in October last year on the back of fears surrounding currency risk in the economy. In the year to date both the ZSE industrial index and mining index grown by 264,97 percent and 231,38 percent to 527,49 points and 135,38 points respectively.
Market capitalisation, which hit $15 billion mark on Tuesday for the first time ever, is now over 90 percent of Zimbabwe’s GDP — indicating that the market is overvalued, analysts say.–source