Is It Time To Rejoice For Zimbabwe?

The hyperinflationary situation in the Zimbabwean economy is known to most of us. The "gross economic mismanagement" by the Zimbabwean government has led to the collapse of the economy. Inflation is officially running at an annual pace of 231 million percent, but some experts put it more at about 20 trillion percent.

Given this dilapidated situation and in the face of the world’s biggest capital markets going for a toss, the Zimbabwean stock market has been seeing record gains as citizens turn to equities in a desperate attempt to protect their money from the country's hyperinflation. The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent.

Now the question is whether it is time to rejoice or not. To my opinion these figures do not substantiate any sustainable growth - they are just another representation of Zimbabwe's collapsing economy and are almost meaningless in real terms. The ZSE has managed to survive despite the tough environment probably because of Zimbabwe's isolation from the international world — and therefore protection from the financial turmoil – somewhat similar to what the Indian stock markets looked like.

The unofficial exchange rate of Zimbabwean dollars to U.S $ rose from 30 million/$ to 100 million/$. This is probably happening because of shortage of cash and people are resorting to equities trying to hedge against inflation. Market performance was also being driven by strong, cheap assets which are offering returns that were more than matching inflation. The market was largely overvalued in Zimbabwean dollar terms but undervalued in U.S. dollars. The market value of the ZSE being about $2.5 billion compared to South Africa's JSE, which is worth about $460 billion. That evidently tells us there is nothing to be too much optimistic, till such time there is political instability.