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Bulls rampage at Zimbabwe bourse as economy sinks
MacDonald Dzirutwe, Reuters
December 06, 2006

http://www.mg.co.za/articlepage.aspx?area=/breaking_news/breaking_news__business/&articleid=292526

In between scribbling, shuffling small pieces of paper and tapping calculators, the brokers yell loudly, clamouring for attention.

It's another busy day at the Zimbabwe Stock Exchange (ZSE).

The bull run here is an odd side effect of an economic crisis that has seen inflation spiral to over 1 000% -- the highest in the world -- while unemployment has hit 80% and poverty levels have soared.

The crisis has been widely blamed on President Robert Mugabe's government, but it denies responsibility and says it is a victim of a Western sabotage campaign over a controversial and sometimes violent land reform programme.

"In a normal economy, stock market performance should mirror the economic prospects of the country but in our case it is a lot different ... I think the good rally is because there are very few investment options that can provide real returns," Patrick Saziwa, an analyst with Kingdom Stockbrokers said.

The Africa Stock Exchanges Association (ASEA) said the ZSE was among the bourses that offered investors the highest returns in Africa in 2005 and for most of this year, despite a deep economic recession.

ASEA statistics showing the ZSE recorded a 1 545% rise in 2005 and shot up by more than 2 000% between January and the first week of November, 2006.

The ZSE has a market capitalisation of around $20-billion, with 9,6-million shares valued at $760-million traded in 2005.

Compared to Johannesburg's JSE Securities Exchange, which had a market value of R3,5-trillion ($489,2-billion) at the end of 2005, this is tiny. But Zimbabwean investors say their exchange is one of the few places in the country to get good investment returns.

"People know where the good returns are. The stock market is one of the few [to offer these] and this is why we see it performing above all markets," ZSE chief executive Emmanuel Munyukwi told Reuters.

Reserve Bank of Zimbabwe Governor Gideon Gono has said the ZSE has become a haven for speculators, where "dirty" money from illegal foreign currency trading is used.

Some companies have been accused of taking advantage of special low interest rates meant for troubled industries to borrow money cheaply and buy shares, instead of using the funds to improve industrial production.

The central bank's recent efforts to mop up excess liquidity from the market by hiking bank statutory reserve requirements to 60% from 45% and forcing the banks to invest more funds in long-term bonds have failed to halt the bullish trend.

Shares here can rise by more than 50% in a week, something not lost on investors scouting for opportunities to hedge against inflation of more than 1 000%.

Heavily capitalised stocks like Old Mutual Zimbabwe, Pretoria Portland Cement, hotel group Meikles Africa and cellphone firm Econet Wireless have largely driven activity at the stock market.

"It is not true to say dirty money is responsible for the bull run and neither is the stock market a haven for speculators," Farayi Dyirakumunda, a research analyst with Interfin Securities said.

"It is a case where investors have limited legal investment vehicles. There are always speculators and non-speculators but that's the nature of stock markets," Dyirakumunda said.

The majority of Zimbabwe's 12-million people have not benefited from the stock rally. Munyukwi said 90% of shares on the 80-company bourse were held by large corporates.

Brokers said this was because stockbroking firms required a minimum of Z$100 000 ($400) from investors -- more than twice the monthly earnings of an average Zimbabwean.

"The biggest impediment to participation by many people is the erosion of disposable income. People do not have money and even if they could afford the lower capitalised stocks, the returns are way below the transaction costs," Munyukwi said.

"I think many people are more worried about surviving until the next day and sending their children to school rather than thinking about the stock market," Sekai Muchineripi, a primary school teacher outside Harare said.

"How many people know the stock market anyway?" she asked.

The stock market boom has also failed to woo foreign investors.

ZSE statistics show that only 2,31% of the shares were held by foreigners at the end of October, compared to 2,8% last year.

Analysts said tough foreign exchange regulations, such as one that requires central bank approval to repatriate profits and dividends, heavy taxes and the economic decline had discouraged foreigners. - Reuters

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