Another bullrun in the offing for ZSE

With Government recently activating the $18 billion stimulus package to soften the effects of the coronavirus (Covid-19) pandemic, observers say this might largely function as liquidity for the Zimbabwe Stock Exchange (ZSE).

Since reportage of its first cases in China’s Hubei Province last December, Covid-19 has devastated economies and businesses across the globe.

But the local bourse hasn’t been complaining as investors have been seeking out stable investments.

Last week (June 4) the local bourse ended a 20-day bullrun, but to the extent of the $18 billion boost, another one could soon be in the offing as local investors pile into stocks to hedge against the depreciating Zimbabwe dollar.

As at June 3, turnover on the local bourse was in excess of $2 billion, compared to $2 billion for the entirety of 2019, which observers mainly attributed to excessive money supply, excess liquidity and limited investment options.

And as at the close of last week, the ZSE’s total market capitalisation stood at $204 billion, with a weekly turnover of $542 million.

Although that bullrun has ended, with the ZSE’s market cap waning to $199 billion as at close of trades on Wednesday, the anticipated increase in liquidity on the market should stimulate another bullrun.

All things being equal, monies from the package should go into the productive sectors of the economy.

Of the $18 billion stimulus package, $10,6 billion has been earmarked for on-lending to borrowers in the productive economic sectors of agriculture, mining, manufacturing and tourism.

Although the package is aimed to cushion companies from the debilitating effects of the pandemic, analysts say inflationary pressures and high levels of currency depreciation could work against the core purpose of the stimulus package.

The recent jump in the S&P500 after the United States’ Federal Reserve injected new cash into the US economy, has been cited as a foretelling of what could happen in our local capital markets.

“Zimbabwe has taken on a similar path, with the $18 billion that is about to be rolled out into productive sectors.

“Earlier this week, the Minister of Finance and Economic Development Mthuli Ncube, announced concessionary terms for the $18 billion Covid-19 economic recovery and stimulus package.

“We anticipate that the disbursements, together with expansionary monetary policies, will have limited success in actual ramping production owing to the existing country-specific risks in the

country,” said analysts at Morgan & Co.

“We note that the package is not being accompanied by exchange and inflation rate stabilisation frameworks, which are crucial in addressing demand-side constraints.

“In drawing parallels from the S&P’s recovery, we also observe that, in circumstances where additional funds are introduced in an economy characterised by adverse operating conditions, a bullrun on the stock exchange will likely ensue as borrowers direct funds to the stock market as opposed to productive activity.”

But there are strategies Government can use to help ensure that the monies aimed at productive sectors of the economy are not directed to capital markets for speculative purposes.

Earlier this week, the Confederation of Zimbabwe Industries (CZI), called for the bailout to be accessible (for companies) in foreign currency, so as to allow industry to import raw material, equipment and spares.–ebusinessweeklyc.oz.w

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