Zimbabwe is on the hot search again, the stock market plummeted, and the all-stock index plummeted by 99.95%, the author was also shocked when he saw this decline, that is, individual stocks did not plummet so much in the short term, not to mention the all-stock index of an exchange, so the author checked it and understood it after understanding.
The following chart is the trend chart of the Zimbabwe Industrial Index in the last year, the index includes the core of Zimbabwe 56 companies, covering eight industries including consumer goods, consumer services, finance, industry, health care and telecommunications, the trend in the past year is very good, from 130,000 points to 2.92 million points, a 22-fold increase, is the largest increase in the global stock market, but on April 8, it fell to 101 points in one day, a decline of more than 99.99%, and the huge wealth instantly disappeared. It's like if you have a stock market value of $3 million, and it shrinks to $100 overnight.
The most direct reason for Zimbabwe's monetary reform is the introduction of the gold-backed Zimbabwe Gold Coin (ZiG) on April 5, and the stock market plummets on the next trading day (April 8).
Why did the monetary reform cause the stock market to plummet? The essential reason behind this is inflation, and Zimbabwe's stock market rises and falls, rising and falling due to inflation. Do you still remember the Argentine stock market at the beginning of the year? From 930,000 points at the beginning of the year to 1.32 million points on 2 February, a sharp increase of 42 percent in one month, A-share investors looked at the A-shares that were falling, and instantly envied Argentina.
At that time, many financial Vs boasted about Argentina, saying that this was because the new Argentine president's reform measures were effective, embracing fundamentalist marketism, which was the victory of the Argentine version of "reform and opening up", in fact, the truth was nothing more than two words - inflation, after the new president came to power, a series of measures led to more serious inflation, which led to a sharp rise in the Argentine stock market.
This revealed a secret, inflation will fuel the stock market, hyperinflation is like cooking oil, so that the stock market "soars", have you ever thought about a question, the United States Dow Jones Industrial Index has been almost 130 years, and the United States has become the world's largest economy for almost 130 years, the Dow Jones index is only nearly 40,000 points, how can the Argentine stock market rise to 1.32 million points?
The reason behind it is nothing more than inflation, inflation is because of the indiscriminate issuance of currency, which leads to currency depreciation, currency depreciation is relative to commodities and assets, currency is a tool for value measurement, currency depreciation, the price of things measured by it will naturally rise, enterprises in the stock market produce various goods and services, these goods and services will naturally rise in price, and finally lead to the expansion of corporate revenue and profits, and finally reflect in the stock market, natural prices are also rising.
The following chart is Argentina's inflation trend chart in the past ten years, basically 350%, inflation soared after the new president took office, and now it is about to break through 300%, such high inflation, the stock market is naturally going to rise, if China's inflation is double digits, A shares will also rise, of course, this does not mean that you will make money.
Zimbabwe's inflation is even more outrageous, it should be the most inflationary country on the planet in history, the country's currency is not worth more than the paper that wipes the ass, the inflation level of this country reached 24,000% in 2008, and it was as high as 540% in February 2020, you must know that inflation is "compound interest" Model, after years is very terrifying, Zimbabwe has issued a currency of 100 billion face value, but this is also a number, Zimbabwe has also experienced multiple rounds of currency reform, the situation is better, but now the most popular currency in this country is the US dollar and other currencies with international circulation.
Now 1 dollar is equivalent to 380 yuan Zimbabwe, 1 yuan is equivalent to 52 yuan Zimbabwe, this time Zimbabwe also wants to go further with currency reform, so it started the gold standard, the gold standard is the most able to suppress the hand of currency issuance, but also the nightmare of inflation, the dollar has always been called the dollar, because of the establishment of the Bretton Woods system during World War II, the dollar and gold are linked, so it is very popular internationally, in 1971, Nixon announced the abandonment of the gold standard, the dollar was able to decouple from gold, since then, the dollar has been indiscriminate, but it is also much stronger than the currencies of other countries。
If Zimbabwe can establish a gold-based currency issuance system supported by gold, the hyperinflation accumulated over the years can be solved, and the asset prices based on the previous hyperinflation will also usher in a new round of pricing, the previous inflation was relatively high, so the currency is chasing the assets, the stock market is also an asset pool, relatively able to maintain value, which also leads to the stock market and other asset prices are higher, the Zimbabwean Singapore currency is supported by gold, naturally more investment value, under mutual competition, the price plummeting is understandable。