Saturday, April 14, 2007

Invest in the Zim stockmarket

....".... With inflation at nearly 1800%, unemployment at 80%, and GDP having been slashed in half over the years, a thriving Zim stock market seems, well, impossible. But the 12,000% year-over-year increase is well over the rate of inflation, so people are obviously getting rich and keeping their money safe . The Institute explains that the Austrian Business Cycle Theory has something to do with it.
The ZSE is growing some three times faster than consumer prices. This relative outperformance versus general prices is a result of stocks being a chief entry point for the flood of newly created money. Keep Zimbabwean dollars in your pocket, and they've already lost a chunk of their value by the next day. Putting money in the bank, where rates are pithy, is not much better. Investing in government bonds is the equivalent of financial suicide. Converting wealth into foreign currency is difficult; hard currency is scarce, and strict rules limit exchangeability. As for capital improvements, there is little incentive on the part of companies to invest in their already-losing enterprises since economic prospects look so bleak. Very few havens exist for people to hide their wealth from the evils created by Mugabe's policies. Like compressed air looking for an exit, money is pouring into shares of ZSE-listed firms like banker Old Mutual, hotel group Meikles Africa, and mobile phone firm Econet Wireless. It is the only place to go. Thus the 12,000% year over year increase in the Zimbabwe Industrials.
Though the government print more and more money and distributes it into the system via financial institutions such as banks, they are opting to put it into stocks rather than hold onto it. One day can cause its value to collapse, but the stock market is driven by demand. Therefore, all of the rich people, government officials, and banks are putting their money into stocks so that it doesn't lose value. Demand is high, so the price is too.

The everyday people of Zimbabwe don't see any benefit to this, though. Their masters may not see it for much longer either. Stock prices on the index are obviously inflated and unsustainable. It's only a matter of time before it comes crashing down, taking down many in its spiral.

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