FINANCIAL services firm, IH Securities says currency depreciation last month kept the growth of the Zimbabwe Stock Exchange (ZSE) nearly stagnant at 1,5%.

Last month, the Zimbabwe dollar depreciated 34% against the greenback on the parallel forex market and 4,17% on the official one.

In its March market review released last week, IH Securities said the depreciation of the local currency led to growth of just 1,5% in real terms.

“While activity was weaker in March, the Zimbabwe Stock Exchange witnessed improvement in market cap as it grew 36% within the period to $3,36 trillion from the $2,4 trillion registered in the month of February,” IH Securities said.

“However, the local currency experienced headwinds, depreciating 34% within the month under review and as a result, performance of the bourse in real terms was diluted to a growth of 1,5%.”

These distortions are the major reason why companies are migrating or choosing to list on the forex-only Victoria Falls Stock Exchange (VFEX).

“Average daily value traded for the month of March slowed from an equivalent of US$0,82 million in February to US$0,48 million, while total volumes reduced 70% to 96,71 million. Accounting for the delisting of Axia and Innscor, market capitalisation for the bourse grew 110% in nominal terms versus a currency depreciation of 81% for the first quarter of the year pointing to real growth of 30%,” IH Securities said.

Despite this, IH Securities said the main bourse at a current market cap of US$2,2 billion, was still trading at a discount to the long-term average of US$4 billion giving an opportunity to potential investors.

“As such, the ZSE offers upside, trading at a deep discount to fair value despite fundamental growth in businesses over the past three years and themes of increasing corporate transactions,” the financial services firm said.

IH Securities said it was of the view that there would be a continued strong correlation between money supply and ZSE stock market performance moving forward.

In January, the central bank reported an increase in money supply of nearly 13% to $2,69 trillion, from a December 2022 comparative of $2,33 trillion.

This comes as government is under more pressure to meet social needs as elections anticipated in August this year draw near.

“The uncertainty around money supply developments in 2023 propels us to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued,” IH Securities said.

Regarding the VFEX, the exchange saw new listings during the first quarter from conglomerate Innscor Africa Limited and Axia that took its market cap from US$608 million to a billion-dollar valuation.

IH Securities said this marked an increase in quality names on the bourse.

“Market cap within the month traded down 8,2% to US$1,03 billion weighed down by negative performances in six of the nine listings,” IH Securities said.

“Caledonia was the top gainer in March gaining 20%. Average daily trades for the exchange in March registered at US$35 673 versus US$31 776 in February, signifying a slight uptick in liquidity. Shares trading hands, however, decreased 32% m-o-m [month-on-month] to 2,99 million.”

IH Securities said the exchange had a steady pipeline of new listings in the banking sector, property segment and bond offerings.

“We expect increased liquidity going in the short term from dividend remittances being re-invested into the exchange. On a one year rolling basis, the VFEX All Share Index has outperformed its peer and has provided the better store of value within the period,” IH Securities said.