The country's stock market plummeted by 99.95% during the year!

The Zimbabwe Stock Exchange's all-stock index has seen a rare plunge since the Zimbabwe Central Bank launched ZiG (short for Zimbabwe's new currency, Zimbabwe's gold) on April 5, 2024.

As of the close of trading on Monday, April 22 local time, the Zimbabwe All-Share Index was at 96.33 points. The Zimbabwean stock market rose more than 330% from the beginning of the year until the new currency was issued, reaching an all-time high on April 5, followed by a plunge from 915,936.81 to 100.23 on April 8, a one-day decline of more than 99.99%, and a year-to-date decline of 99.95%.

(Zimbabwean stock index movements.) Source: Zimbabwe Stock Exchange)

The birth of the Zimbabwean gold

Long before the release of the new currency, the Zimbabwean dollar, had lost more than 80% of its value from the beginning of the year to early April, making it the second worst-performing currency in the world. The currency crash caused more than 80% of local transactions to be conducted in US dollars, and inflation rose from 47.6% in February to 55.3% in March. On March 28, Zimbabwe's newly inaugurated central bank governor, John Musayawanhu, was faced with a daunting task: to restore the credibility of an institution known for printing 100 trillion banknotes and 200 percent interest rates.

A week after taking up his new role at the Reserve Bank of Zimbabwe, the former Standard Chartered banker issued his first monetary policy statement on April 5 local time, replacing the original Zimbabwean dollar with a new currency called ZiG.

It is understood that this is Zimbabwe's sixth attempt to have a functional local currency since 2008, and according to IMF estimates, Zimbabwe's inflation rate in 2008 exceeded 500000000000%. At the same time, the new currency is backed by a basket of foreign currencies and gold, and in a document explaining these supports, the bank said that the current reserves include $100 million in cash and 2,522 kilograms of gold. "The total amount of gold and cash reserves held at $285 million, which is more than three times the coverage of the ZiG currency being issued," said John Musayawanhu. ”

The value of ZiG is not only backed by a basket of foreign currencies and gold. According to official sources, the new currency will be circulating in the economy from April 30, and the central bank will continue to carry out promotional activities to raise awareness of the new currency. "To stimulate demand for ZiG, Zimbabwe will make it mandatory for businesses to pay at least half of their taxes in the new currency," the central bank said. ”

The local government showed full confidence after the launch of the new currency, saying: "The currency change is expected to reduce the annual inflation rate to 2% to 5% by the end of the year and the monthly inflation rate to below 1%. ”

Plummeted by more than 99.99% in one day

The Zimbabwe Stock Exchange provides investors with one of the few investment options in southern African countries to hedge against exchange rate fluctuations and inflation. In fact, before the launch of the new currency, investors rushed to buy stocks to avoid the collapse of the local dollar and soaring inflation. However, on Monday, April 8, local time, Zimbabwe's new monetary policy erased more than 330% of the stock market's gains this year, and investors didn't even have time to react to what happened, and the stock index fell by more than 99.99% in one day.

The exchange's chief executive, Justin Bugoni, said on April 8 that a number of factors contributed to the exchange's poor performance, including the long time it took for the country's banks to complete the conversion from the Zimbabwean dollar to ZiG, as well as tight market liquidity. "In general, people are also hesitant to understand what the value of ZiG is," he said. ”

(Zimbabwean stock market turnover.) Source: Zimbabwe Stock Exchange, Bloomberg)

According to data from the Zimbabwe Stock Exchange, since the release of the new currency, Zimbabwe, the volume and turnover of the Zimbabwe stock market have decreased from 15.251 million shares and $2.387 million to 1.877 million shares and $222,000, respectively.

Lloyd Mloshwa, head of research at Harare Brokerage, said the drop in trading volume had led to a drop in revenue of at least 50 per cent for some brokerages, with most of them taking a huge hit to their earnings. For stockbrokers, he said, the new currency has had a domino effect, resulting in lower average daily volumes, which in turn has a knock-on effect on the stockbroking industry.

Not only has there been huge volatility in the stock market, but there have also been problems in the retail market. According to foreign media reports, locals prefer to believe in a stable dollar. While companies will be forced to use ZiG to trade and pay taxes at the official exchange rate set by the central bank, the market is sticking to a more stable US dollar. This means that the retailer will sell the item in US dollars, which is usually much more expensive than the same item sold on the street. The new monetary policy does not seem to have affected informal traders, who are making more profits by trading in the US dollar.

Denford Mutashu, president of the Zimbabwe Retailers' Federation, said, "The new policy has created a significant disadvantage for compliant businesses struggling with taxes, licensing, labour costs and rents. The IMF warns that this could "fuel informality, which erodes the tax base and hurts long-term growth."

"Assuming the currency remains stable, retailers run the risk of 'exiting the market' if they raise prices too much," said John Musayawanhu. ”

It is understood that in order to support the new currency and stimulate growth, which is limited by high borrowing costs, the central bank reset the interest rate from a world record of 130% to 20%. So far, ZiG has made a good start – after more than a week of trading, its exchange rate has risen more than 1% against the US dollar.

Editor-in-charge: Ye Shuyun

Proofreading: Zhu Tianting

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