It’s been a remarkable month in Zimbabwe.
After 37 years that saw the southern African nation deteriorate from one of the continent’s most prosperous to one of its most destitute, President Robert Mugabe resigned from office on November 21 following a military takeover precipitated by his sacking of Vice President Emmerson Mnangagwa.
The dramatic turn of events has understandably raised hopes of much-needed political and economic reforms. And I’m already getting questions from readers who are keen to figure out how best to invest in the country.
So, is it time to buy Zimbabwean stocks?
In my view, the answer is no. But it’s most certainly time to familiarize yourself with the market.
Here’s why investors should stay on the sidelines for now.
- The new administration is not certain to implement needed political and economic reforms.
- After a huge run-up this year, the Zimbabwe Stock Exchange (ZSE) isn’t exactly cheap.
Risky Business
True, it’s hard to imagine that Zimbabweans will be any worse off after Mugabe’s departure. The past two decades have been nothing short of ruinous.
But it’s important to remember that Mnangagwa, his likely successor, has a deeply checkered past. Thousands of civilians were massacred in Matebeleland during his tenure as security minister in the 1980s. He was also implicated in the invasions of white-owned farms and in the brutal crackdown on supporters of the Movement for Democratic Change (MDC).
Even if Mnangagwa, while not a saint, proves to be a pragmatist and steers Zimbabwe toward economic recovery, Zimbabwean stocks are still tremendously overpriced.
The ZSE’s main index has posted a 128% gain since the start of this year. But the surge isn’t a result of improved earnings or a newly bullish outlook. Quite the contrary. With dollars increasingly scarce, local investors were worried about the potential for a return to the bad old days of hyperinflation and raced to invest in stocks as a way to protect the value of their savings.
When the military took over the government on November 14, inflation fears began to subside. And stock prices plunged. The ZSE’s Industrial Index has plummeted 38% since that date. And, as I write, it remains in near free-fall. Yet the market’s average price-to-earnings ratio remains at an exceedingly high 30.0. Thus, the prudent course is to wait for the market to find a floor.
This could take a matter of days, weeks, or months. It’s impossible to say with certainty.
What to Watch For
There are two things that would indicate that Zimbabwe’s stock valuations are migrating from highly speculative to long-term value territory:
- The ZSE Industrial Index falling from its current level of 329.6 to somewhere in the low 200s (ideally lower); and
- An official announcement that elections will proceed next year as scheduled. If this doesn’t happen, the new administration’s legitimacy will remain in question, as will its capacity to put the country on the track to economic recovery.
Three Stocks for Your Watchlist
If both of the above conditions are met, I believe there are a few companies that stand a good chance of yielding market-beating returns over the long-term.
Axia Corporation
(Current Price: $0.20; P/E Ratio: 14.3; Dividend Yield: 2.5%)
Axia operates Zimbabwe’s popular TV Sales & Home stores, which sell a wide range of furniture, electronics, and appliances. It also runs a trucking and warehousing business, and Transerv, which distributes spare auto parts.
The company’s earnings have been remarkably resilient in recent years thanks to inflation-wary consumers spending cash on tangible goods. The business will likely find it easier to import inventory in a post-Mugabe Zimbabwe.
OK Zimbabwe
(Current Price: $0.20; P/E Ratio: 27.0; Dividend Yield: 2.3%)
OK Zimbabwe operates one of the nation’s largest grocery chains. Similar to Axia, it should find it much easier to restock its warehouses with imported goods under the new regime and should also benefit from what is forecast to be a good agricultural harvest this year, which should put a bit more spending money in consumers’ pockets.
Econet Wireless
(Current Price: $0.86; P/E Ratio: 23.2; Dividend Yield: 1.7%)
Zimbabwe’s dominant telecommunications provider, Econet boasts a 49.4% share of the nation’s mobile telephone market. Similar to Kenya’s Safaricom, it is a pioneer in the field mobile payments and insurance. Mugabe’s departure raises the prospect of increased availability of foreign exchange, which should allow companies like Econet to more rapidly expand and enhance their services.
How to Invest in Zimbabwe
If you don’t already have a stockbroker in Zimbabwe, the good folks at IH Securities will be happy to help you open a trading account and to register with the Central Securities Depository.
You might also find the following article helpful:
How to Invest on the Zimbabwe Stock Exchange
Your Turn
Do you think Zimbabwean stocks are a bargain in these early post-Mugabe days? Let’s hear your thoughts in the comments.
Hie Ryan. Thanks for the comment. I feel the statistic on Econet controlling 49.5% mobile telecom business appears to conflict with what was recently published by Potraz, the local regulatory authority for telephone business. It was in the region of 99%!
Thanks, Benny. It looks as though market share is calculated on a customer basis and on a revenue basis. This article from October says Econet has 50.2% of customers and 78% of revenue. Ecocash, meanwhile, has 98% of the mobile payments market.
Great analysis as always Ryan!
Thanks so much, Norbert. Glad you found it useful!
Thanks for the insightful analysis Ryan..I agree with you – its better to wait and see how the events will unfold post Mugabe. The crocodile (Mnangagwa) was Mugabe’s right-hand man – he is no different from his predecessor.
That said, he might try to surf with the current waves (people’s expectations) and bring about the much needed reforms. Zimbabwe has excellent infrastructure and educated/skilled citizens. However, It is still a long way to go before we can say with certainty that things are improving.
Lets wait and see.
Boniface-Zambia.
Well said, Boniface. Thanks!
Hi Ryan, thanks for the piece.
Zimbabwe just underwent the sexiest coup if all times, led by the cunning and scheming Mnangagwa who in essence has been an intergral part to formulation and prolonging of human rights abuses and laws that don’t inspire any confidence to investors. He is likely to maintain and keep the same crop of cabinet Ministers whose primary qualifications this time around is their loyalty to him. The poison remains the same, only the screw on cap has been changed. All this makes no sense to business. However, the ruling party has been presented with an opportunity to reformed buoyed by the gullibility of masses who see resignation of Mugabe as an end to their problems, the new dispensation has been presented with an opportunity to capitalize on that, but then again this a political party whose citadel is ‘allergy to reform’.
I think traders have to play the game of wait and see especially for those engaging in long term investment as a strategy. For those employing the strategy of tactical short term wins, there might be great opportunities in the interim, you’ll just have to keep your ears on the ground.
Thanks for this, Prodigious. I hear you. Heavy on the caution and light on the optimism.
Any suggestions on Zimbabwe focused ETFs or other investment vehicles that I can buy from US brokerage account without opening a Zimbabwe brokerage account.
Hi Peter,
Unfortunately, I’m not aware of any. If your broker gives you access to the Johannesburg Stock Exchange, you might check out the Cloud Atlas Big 50 ex-South Africa ETF. At last check it had a 5% weight allocated to Zimbabwean stocks, and I’m guessing this will increase assuming the economy shows signs of regaining its footing.
the easy part is getting your money in … good luck getting money out. The country has no $$$ until that is fixed you cant do anything there.
Thanks, Steven. This is a crucial point. Zimbabwe’s got a dire foreign currency shortage. This will ease as exports rise, the budget deficit stabilizes, and investor confidence improves. None of which will happen overnight. Thus, investors with a time horizon of five-years or less should steer clear.
great analysis Ryan.
Stella- Kenya
Much appreciated, Stella!
Thank you Ryan for your analysis.l don’t know if it’s relevant to the subject but what about the skilled workforce,when is the right time to consider a new career opportunity in Zimbabwe? Thank you
Amazing analysis.
Hi
Old post I know but just to check back several months after you wrote this article.
1) Indigenization Laws have been changed
2) White farmers given some of the land back and also given 99 year leases
3) Land Leases now can be used as coleteral with landing banks
4) Corruption drive gathering steam
5) Elections definitely happening by August 2018
6) Positive international reengagement with U.K. Government support
7) Violence free elections looking very possible
Are these positives one could count on when considering stock market investment?
Barclays Bank shares trading at 4,4 cents do you think they are still over valued?
What are the new counters you would recommend one to watch?
Thanks
Hi Ryan great article. I wonder if you hear of Venezuela Stock Market and the hyperinflation process. Thanks