Traders See Trouble in Zimbabwe’s 28% Stock Surge and Weaker ZiG

Zimbabwe’s stocks are on a tear as investors seek refuge from the new bullion-backed currency that’s at a record low against the US dollar.

The Zimbabwe Stock Exchange’s All Share Index, which trades exclusively in local currency, has risen 28% since Aug. 28, when the ZiG started consistently losing value against the dollar. The index has risen 160% since it was rebased to a 100 when the unit started trading on April 8.

But instead of causing jubilation among equity traders, it has them worried. They see the surge as a return to the past and a reflection of deep-seated trouble in the currency markets.

“The stock market has remained largely correlated to the parallel market and injections of ZiG liquidity,” said Lloyd Mlotshwa, the head of research at IH Securities, a Harare-based brokerage. “It’s the same song on repeat.”

The ZiG, short for Zimbabwe Gold, which started trading at 13.56 at adoption now sells for 26 per dollar on the parallel market and 13.97 officially. It has lost value against the dollar for 17 straight trading days, its longest losing streak since its debut.

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The southern African nation introduced ZiG, its sixth attempt at a functioning currency in 15 years, to build confidence in a local unit after its predecessor the Zimbabwean dollar lost more than 80% of its value against the US dollar this year. Its plunge caused investors to pile into stocks as a safe haven and hedge against surging inflation, leading to a more than fourfold increase in the stock market.

The central bank has instituted various measures to support the ZiG including a crackdown on street traders and pumping $64 million so far this month into the market. The injection will “effectively mop-up significant liquidity in the market,” Governor John Mushayavanhu said in an emailed statement Thursday.

Stocks favored by investors include Econet Wireless Ltd., the largest telecommunications company and Delta Corp Ltd., a beverages maker, said Mlotshwa. “ZiG flow is concentrated in those two names.”