Zimbabwe’s ZiG Transition Triggers Stock Market Turmoil, Investors Struggle

According to a report from Bloomberg, Zimbabwe’s adoption of ZiG, a currency backed by gold, has abruptly halted a remarkable 330% surge in the Zimbabwe Stock Exchange (ZSE) this year, leaving investors to grapple with the fallout.

ZiG, introduced as a replacement for the Zimbabwean dollar, which had already depreciated by 80% this year, has had significant repercussions. Since ZiG’s introduction, the ZSE All Share Index plummeted by 99.95%, symbolizing Zimbabwe Gold, on April 5.

The shift to ZiG has resulted in a sharp decline in trading volume and transaction value, as share prices transitioned from the old currency to the new.

Investors had sought refuge in stocks amidst the local dollar’s decline and soaring inflation, which hit a seven-month high of 55.3% in March. However, while the stock exchange has been one of the few avenues for investment to hedge against exchange-rate instability and inflation, the surge in stock prices has become an ominous sign of impending currency turmoil.

Justin Bgoni, CEO of the ZSE, attributed the exchange’s poor performance to various factors, including the prolonged transition period for banks to switch from Zimbabwean dollars to ZiG and tight market liquidity.

There is widespread hesitancy and confusion among investors regarding ZiG’s value, with the stock exchange converting share prices at a rate of 1 ZiG to 2,498 Zimbabwean dollars following a central bank directive on April 5 mandating ZiG as the new transaction currency for bank accounts and supermarket prices.

The decrease in trading volumes has led to a revenue drop of at least 50% for some brokerages, resulting in significant earnings setbacks, according to Lloyd Mlotshwa, head of research at IH Securities in Harare.

Stockbrokers are describing the situation as a “painful early winter,” marked by low trading activity, and anticipate adverse effects on the entire stock market ecosystem, including custodians, government revenues, and the ZSE, which collects fees and commissions.

Enock Rukarwa of FBC Securities highlights the significant challenge posed by the ZSE’s decision to trade in ZiG, given that 80% of transactions are in dollars.

Imara Asset Management, managing $100 million in assets, predicts potential upheaval in the coming months as ZiG share prices remain unstable. Imara’s CEO and CIO, John Legat and Shelton Sibanda, suggest that it would have been wiser for the ZSE to switch to US dollars, aligning with the Victoria Falls Stock Exchange, as many listed businesses report and pay dividends in US dollars.



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