HARARE, Oct 11 (Reuters) - A shortage of foreign exchange in Zimbabwe has hit the surrogate ‘bond note’ currency, driven prices upwards and sent a ripple of fear through the economy but one institution has never looked so good: the stock market.
Asset managers and other investors see stocks as a safe haven in a time of uncertainty and the main market index hit a record 699.89 points on Thursday, extending this week’s gains by nearly 18 percent, official data showed.
“We are seeing investors shifting to stocks to protect their money,” said an analyst with a local asset manager.
“The carnage in the currency market with the bond notes and electronic dollars losing value in the past week has reinforced our argument that the stock market remains the best bet for investors,” said the manager, who is not authorized to speak publicly.
Zimbabwe’s economic problems pale in comparison to 2008 when declining agricultural production and the printing of money caused hyperinflation.
But they have worsened sharply this month. Some businesses have closed due to the dollar crunch and the situation is a headache for the new government of President Emmerson Mnangagwa.
Police patrolled the capital Harare on Thursday and arrested several leaders of the main labour movement in a pre-emptive move against planned demonstrations against the deteriorating economy, lawyers said.
Investors are snapping up shares while ordinary Zimbabweans stock up on basics like cooking oil, sugar and rice, which has caused shortages in the shops. Official inflation stands at around 5 percent, though analysts say the real figure is significantly higher.
Zimbabwe Stock Exchange’s industrial index has gained 55 percent since Monday. Market capitalisation reached $22.9 billion from $19.5 billion on Wednesday. The country’s gross domestic product stands at about $25 billion.
Old Mutual, one of the most traded shares in Harare closed at $12.70 compared with the sterling equivalent of $1.42. That means Zimbabweans need more dollars than people in London to buy the same shares.
While a number of factors may be at play, this suggests their currency is worth less than its face value, which is officially at par to the dollar.
That is the case with bond notes which are pegged at 1:1 to the greenback but are traded at a discount on a thriving parallel market.
After winning a disputed vote in July, Mnangagwa faces the hard task of reviving an economy that has struggled for two decades blamed on the policies of former leader Robert Mugabe, who was removed in a coup last November.
Mnangagwa and new Finance Minister Mthuli Ncube say Zimbabwe has to endure a period of pain as the economy re-adjusts but promised to keep using the U.S. dollar and other foreign currencies adopted in 2009 to end hyperinflation. (Editing by Matthew Mpoke Bigg)