ZIMBABWE’S wobbling economy and the uncertainty around the August general elections may trigger a sell-off on the Victoria Falls Stock Exchange (VFEX) as risk-averse foreign investors exit the market, a new report by FBC Securities has shown.
Local firms migrated to the foreign currency-indexed VFEX while a handful others came to the bourse to raise capital as a safe haven at a time the economy was facing currency volatilities.
Official figures show that market capitalisation advanced 127% between December and June 2023 to US$1.29 million as the bourse has seen a number of listings to date. The benchmark VFEX ALSI has however shed 23% in the year to 30 June.
Experts say while local authorities maintain a more optimistic outlook for the country’s gross domestic product growth this year, expecting growth of around 6% as opposed to an initial 3.8% projection, existing global and local economic complexities point us to a more conservative outlook for the local economy.
The World Bank has revised its projections for the Zimbabwean economy downwards from an initial growth forecast of 3.6% to 2.9%, citing global shocks, structural bottlenecks, and price and exchange rate instability as restrictive factors.
The local currency has also faced increasing pressure, particularly in the last months of the first half, losing 739% and 742% of its value against the US dollar on the official and parallel market, respectively, between December 2022 and June 2023.
“Performance on the Victoria Falls Exchange has remained largely subdued in the first half of the year, with selling pressure generally prevalent,” FBC says in its H1 (first half) and Outlook report.
“Ahead of the 2023 general elections, we expect a cautious sentiment to prevail among investors as they continue to assess the impact of the elections on business. Historically, election periods have been marred by economic volatility and bouts of violence, which may dampen investor confidence.
“Despite the growing trend of dollarisation locally, with estimates of the economy being over 80% dollarised, the VFEX remains dominated by sellers. We anticipate investors will remain cautious moving into elections and the second half of the year, which may increase selling pressure and limit the amount of foreign currency directed to the USD-denominated bourse.”
A sell-off occurs when a large volume of securities are sold in a short period of time, causing the price of a security to fall in rapid succession.
As more shares are offered than buyers are willing to accept, the decline in price may accelerate as market psychology turns pessimistic.