The Zimbabwe stock market evaporated by 99.95%! Blame it all on the new currency ZIG

After Zimbabwe introduced a new currency pegged to gold, the stock market plummeted by 99.95%.

On April 23, since the introduction of the new currency "Zimbabwe Gold Coin" (ZiG) supported by gold on April 5, the stock market has been severely hit, with the overall stock index of the Zimbabwe Stock Exchange plunging by 99.95%.

Before the introduction of the new currency ZiG, Zimbabwe used the Zimbabwean dollar, but the currency has depreciated by 80% just this year. In March, Zimbabwe's inflation rate reached a seven-month high of 55.3%.

Due to the instability of the local currency and high inflation rate, the stock market became a safe haven for investors, who bought stocks in large quantities before the currency crisis in hopes of protection. The Zimbabwe Stock Exchange is one of the few suitable investment options in southern Africa.

Although a rise in the stock market is usually seen as a positive economic signal, in Zimbabwe, the surge in stock prices has raised concerns as it may signal an impending currency crisis.

Therefore, on April 5, Zimbabwe introduced the new currency ZiG pegged to gold with the aim of stabilizing the national economy and restoring confidence in the currency. In theory, as gold has intrinsic value, ZiG should provide a more stable and reliable monetary foundation.

However, in practice, due to investors' concerns about the long-term stability of the Zimbabwean economy and insufficient understanding of the new currency in the market, the introduction of ZiG has had a severe impact on the stock market, with a significant decrease in trading volume and trading value, negatively affecting the stock market and brokerage business.

Data shows that in the two weeks before the currency conversion, there were 1643 transactions, with a trading volume of 15.251 million shares valued at approximately $2.387 million. In the two weeks after the introduction of ZiG, the number of transactions significantly decreased to 390, with a trading volume of 1.877 million shares. The trading value in US dollars also dropped significantly to $22.20.

Justin Bgoni, the CEO of the Zimbabwe Stock Exchange, attributed the poor performance of the exchange to various factors, with the main issues stemming from the lengthy currency conversion process and tight market liquidity.

Currency conversion is a complex process involving a large amount of technical and administrative work. This delay has affected the operations of investors and financial institutions because during the conversion period, fund flows and asset valuations are uncertain, directly impacting trading behavior and investment decisions.

During a conference call on Monday, he mentioned that uncertainty in evaluating the asset value represented by ZiG was one of the reasons for the decrease in trading volume. He said, "People are hesitant about the value of ZiG and do not truly understand its value."

Lloyd Mlotshwa, the head of research at Harare brokerage firm IH Securities, stated: "The decrease in trading volume has led to at least a 50% drop in income for some brokerage firms, and most brokers have been significantly affected. For stockbrokers, the new currency has had a domino effect on the stock brokerage industry, with the decrease in average daily turnover reflecting liquidity issues in the market, thereby affecting the entire stock brokerage industry. ”