The Sunday Mail
Persistence Gwanyanya
Henry Ford once inspired humanity with his prophetic words to the effect that our wishes will eventually turn out to be.
So if you think you are right, you are right. And, if you think you are wrong, you are wrong. Either way you are right.
These prophetic words teach us that life is full of self fulfilling prophecies.
Worse still the stock market. This naturally puts the recent rally on the Zimbabwe Stock Exchange (ZSE) in the spotlight.
The accompanying market reports that the ZSE has grown to become one of the best performing bourses in the world, has left a number of analysts wondering what this means for the future of the economy.
Unsurprisingly so, because the growth in the stock market is divorced from the economic fundamentals on the ground. No wonder why were are beginning to hear growing voices of pessimists arguing that the stock market exuberance could just be a mark of an economic catastrophe ahead.
Those who lived during the hyperinflation era would be more qualified to validate this group of protagonists’ worries about the future of the economy. However, as usual, there are also some optimists who, despite overwhelming evidence to the contrary, have chosen to remain positive about the future.
To them, the bull run is a typical case of the stock market discounting the future – rising before the actual economic upturn. What would be more interesting for an analyst like me is to unpack what could be the silver lining on the dark cloud as viewed by the latter group.
This would undoubtedly lay bare the very fundamental issues our policy makers seem to be missing. Therefore, it’s not a coincidence that this piece has dwelt more on prescriptions to transform the bull run in the stock market into real economic performance for the betterment of Zimbabwe at large.
Since the beginning of the year, the ZSE has been booming, reaching new records every day. The mainstream industrial index recorded a key milestone on Friday the 15th of September 2017, surpassing the 400 points mark.
At 400,03 points, the mainstream industrial index was 148 percent higher than what it opened the year at. The mining index also exhibited a similar trend, increasing by 56,32 percent to 91,46 points over the same period. Mirroring this increase, market capitalisation grew by 189 percent to US$11,29 billion from $4,05 billion recorded at the beginning of the year.
Nowhere in the world can you find such an increase, which puts the ZSE among the best performing bourses on the continent. However, what is worrying is that this growth is not supported by real economic fundamentals implying that there is real danger that this bubble would burst, causing bigger economic challenges.
What would be more important to note is that while the ZSE has been depressed for a long time, the rally could be more than just a market correction as the economic prospects have remained dim. After reaching a peak of US$6 billion in July 2013, the market capitalisation has been on a downward spiral, reflecting tight economic conditions, both globally and locally.
Following a sharp decline to less than $2,8 billion in September 2016, the market started to pick up in the last quarter of 2016, ahead if the introduction of bond notes and the recent rally is largely attributed to cash challenges, which made the stock market a safe haven for excess cash balances sitting in the banks.
Importantly, the recent developments in the stock market should be a wake-up call for policy makers. These issues reflect an economy in urgent need of policy interventions, both short term and long term.
A look at the growth in the market capitalisation to GDP ratios from the beginning of the year reveal the need to grow the economy to accommodate the stock market excesses, which could be fuelling the black market for currencies.
Basing on the projected GDP of US$16,78 billion for 2017, market cap to GDP ratio has risen from about 24 percent at beginning of the year around to 67 percent as at 15 September 2017 with the largest increase of more than 30 percent recorded in one week ended 17 September 2017.
What’s more worrying is that this growth occurs at a time when foreign investors, who used to make more half of the trade on the ZSE are withdrawing their investments, which puts further pressure on forex demand.
Combined together these factors have contributed to the rapid discounting of electronic money which is now trading at around 60 and 30 percent discounts from around 15 and 5 percent against cash USD and bond notes at the beginning of the year respectively. These rates have almost doubled in one week ending September 24 2017. Clearly, this is unsustainable, as it would spark inflation given the high import dependence in Zimbabwe.
There is need for the Reserve Bank of Zimbabwe (RBZ) to urgently intervene by drawing on the US$600 million Afreximbank Nostro Stablisation Facility to reduce pressure on the mounting forex payment backlogs before the situation gets out of hand. Any further delay would have deeper macroeconomic consequences
Importantly, RBZ should move quickly to address the issue of gold dealers who are fuelling demand for bond notes to purchase the yellow metal from artisanal miners for smuggling into mainly South Africa where it’s fetching lucrative prices. There is need to capacitate Fidelity, which is the sole buyer of gold in Zimbabwe, to purchase gold at competitive prices.
The revelations that Zimbabwe is losing around US$500 million in gold smuggling per annum don’t sit well with the aspirations to turn around the country. Equally worrying is the delay to finalise the amendment to the law which criminalises the activities of artisanal miners, who are now contributing about 47 percent of the country’s gold production, which has been on the cards since 2006. This is working again efforts to combat smuggling of the yellow metal.
Persistence Gwanyanya is the Founder and Futurist of Percycon Advisory Services. For feedback WhatsApp +263 77 3 030 691 or email on percyconadvisory.co.zw
