Following the attainment of independence in 1980, the name of the stock exchange was changed from the Rhodesia Stock Exchange to the Zimbabwe Stock Exchange (Zimbabwe Stock Exchange [ZSE], Zimbabwe Stock Exchange Handbook, 2015b). The Zimbabwean stock market boomed in the 1980s amid renewed confidence in the economy, and the external trading of shares was allowed by the government, resulting in an increase in the number of traders and investors. Trading on the ZSE included equities, preference shares, government bonds, municipal stocks, debentures and warrants, however the strong socialist ideologies of the government led to the stock exchange becoming virtually inactive towards the mid-1980s. The industrial index reached its lowest ebb in 1984 when it dropped to about 122 from 447.8 in 1980, however it improved again in the late 1980s, reaching 869.13 in 1989, as a result of improved investor confidence due to news of successful negotiations for an IMF supported programme, the Economic Structural Adjustment Programme (ESAP), which the government agreed to implement. The volume of shares traded also increased significantly, from 20,914,048 in 1982 to 39,201,638 by 1989 (Zimbabwe Stock Exchnage [ZSE], 2015). Most of this improvement was noticed from 1985. The performance of the ZSE in the first 12 years after independence in the form of turnover and indices is reflected in Figure 2.1.
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Figure 2.1: The Performance of the ZSE (1980-1991)
Source: Muzamani, (1993)
The market peaked in August 1990 at an index level of 2700 (industrial and mining combined), and the economic reforms of the early 1990s gave a further boost to activities on the ZSE, however the depreciation of the domestic currency against major currencies, drought, and the general economic downturn squeezed company profits and hit the market badly. As a result, the stock market index plunged by 51 percent to 867 in 1992. In June 1993 the market recovered as short term interest rates declined, and the opening of the ZSE to foreign investors in 1993 and institutional reforms implemented in 1994 also gave the ZSE a major boost. The institutional changes included a reduction in corporate tax from 42.5% to 40%, a reduction in capital gains tax from 30% to 19%, and a reduction in the tax rate on dividends earned on the ZSE from 20% to 15% (Zimbabwe Stock Exchnage [ZSE], 2015). Against this backdrop the industrial index grew by 184% in 1994, with 58% of the traded shares being bought by foreign investors (ZSE, 2016).
From 1995, however, the stock market’s performance started weakening. This was due to two main factors, notably the high domestic real interest rates and drought, which kept investors away from the market. International negative emerging markets sentiment following the Mexico debacle also reduced interest in the ZSE’s shares. However, from July 1995, the stock market was boosted by renewed interest from international investors, who started investing in selected stocks. This renewed interest was based on the belief that there were some very cheap stocks in the market whose long-term value looked promising. In 1996, the ZSE was rated the
0 500 1000 1500 2000 2500 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Industrial Index Mining Index
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best emerging market performer. Market capitalisation was approximately US$255 million, representing an increase of approximately 240% from 1989 levels (ZSE, 2016).
The stock market witnessed a decline of approximately 60% and 88% in turnover and value of shares traded in 1998 respectively, against the backdrop of positive real money market interest rates, which were above 10%. The stock market remained depressed until mid-year 1999, but started showing signs of improvement towards the end of 1999, with a remarkable growth of 25% in the industrial index at the beginning of 2000. This was attributed to the good performance of some listed companies, together with other favourable export measures. The stock market was given the impetus to go even higher by the low interest rate policy adopted in August 2000.
Zimbabwe experienced high inflation from 2001, subsequently graduating into hyperinflation during the period 2007 to 2008. An unprecedented bull-run dominated the ZSE during this period however, mainly driven by self-fulfilling inflation expectations and unbridled speculation. The hyperinflation decimated the domestic economy and all local currency denominated savings, yet the ZSE, in tandem with the informal market, remained vibrant and did not reflect the then state of the economy and the performance of the underlying counters. Increased liquidity into the equities market due to low and negative real returns on the money market, a lack of alternative investment destinations and adverse inflation expectations made the equities market a lucrative investment haven, but reflected speculative behaviour and inflation developments as opposed to GDP growth, i.e. investors started hedging against inflation by investing in the stock market as the prices were inflation adjusted.
As a result, the industrial index surged to 6.5 quintillion points by the end of November 2008, recording growth rates in excess of 15 billion percent during the year, compared to negative growth rates of 14.2% of GDP (Zimbabwe Stock Exchange [ZSE], 2015b). The mining index also exceeded 18 billion percent growth, reaching 7.5 quintillion points by November 2008 (Zimbabwe Stock Exchange [ZSE], 2015b). However, this increase mainly reflected market distortions in the economy emanating from the hyperinflationary environment; share prices were responding to the exchange rate movements of dual listed companies such as Old Mutual, which became the centre of comparison. The participants were also using unofficial exchange
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rates determined by parallel market activities, termed “burning of money”. These rampant, undisciplined and underhanded dealings by market participants compelled the government to suspend trading on the ZSE on 20th November 2008.