(BFM Bourse) – According to Bloomberg, the Harare Stock Exchange has soared by more than 780% since the start of the year and is showing the strongest growth among all the stock exchanges in the world. Local investors feed the market upside by putting their money in stocks, using them as a hedge against inflation.
Even the Nasdaq and its 32% surge since the start of the year, boosted by the enthusiasm around generative artificial intelligence, clearly does not measure up. According to Bloomberg, the largest increase of all the world stock markets is to be put to the credit of… Zimbabwe. Since the beginning of the year, the Harare Stock Exchange has soared nearly 800% (782%, variation in Zimbabwean dollars), according to figures released by the news agency on Monday.
A look at the investing.com price of the “all shares” index of the Zimbabwean market confirms this order of magnitude. The local market capitalization, however, remains modest, around 1.8 billion dollars (US), according to Bloomberg, or about four times less than the smallest capitalization of the CAC 40, Unibail-Rodamco-Westfield. All with 55 listed groups.
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Inflation not far from 200%….
This performance is not due to a sudden take-off of the local economy, the International Monetary Fund only expecting a 2.5% increase in gross domestic product in real terms this year.
On the other hand, this stock market surge is not unrelated to the mega-inflation which is ravaging the country, with prices rising nearly 176% over one year in June, according to Reuters.
In reality, there is a phenomenon that also exists in Turkey, another country ravaged by high inflation, but whose local stock market has risen by 153% since January 1st. Equity markets serve as a safe haven for Zimbabweans to protect their savings from rising prices.
The gains are “entirely due to the search for an inflation hedge (…) for local investors, who have little confidence in the local currency and do not have easy access to US dollars”, explains to Bloomberg Hasnain Malik , emerging markets specialist at the Dubai-based research firm Tellimer.
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Due to inflation, Zimbabweans therefore show a certain distrust of the local currency, which is not accepted for many purchases, such as real estate, cars and even fuel.
“So all those Zimbabwean dollars will go into the stock market,” Tatenda Nemaungwe, a trader who quit his job as a financial adviser five years ago to become an investor, told Bloomberg. The latter assures the American press agency that he now earns on average 10 times more than his former salary per month, thanks to the surge in the local stock market.
Researchers from the University of Bindura, north of Harare, had already identified in a study published in 2009 this behavior of “hedge strategy” on the part of the local population. Between 2002 and 2007, despite the deterioration of the economy, the equity market had clearly progressed.
The rise in the Zimbabwe Stock Exchange “was mainly fueled by speculation, with investors seeking to hedge against hyperinflation. The decline of the Zimbabwean economy during this period caused a flight of capital to the stock market, pushing prices up and leading to huge profits,” they said.
Julien Marion – ©2023 BFM Bourse