Zimbabweans Drive Main Stock Index up 600% Amid Currency Collapse

Trading in the capital Harare was halted on Tuesday. Fear of further weakening of the country’s currency draws people to the stock exchange.

Zimbabweans frantically trying to protect their savings from a collapsing currency have driven the country’s main stock index up 600 percent so far this year, according to Bloomberg.

Trading on the stock exchange in the capital Harare was halted for a short time on Tuesday, when the stock index jumped above the 10 percent limit set in April. This was the second time that the index crossed the border, writes the news agency.

Local traders expect further gains as there are few other assets to buy.

People in Zimbabwe often turn to stocks to hedge against currency collapses and episodes of hyperinflation, according to Bloomberg.

– There is some liquidity in the market, hence this rise. The exchange rate has gone one way, and we expect the trend to continue, says Thedias Kasaira, CEO of Imara Edwards, to Bloomberg.

Currency crisis

The country’s currency, the Zimbabwean dollar, has weakened almost 60 percent against the US dollar in the past month alone. One US dollar is officially worth 3,673 Zimbabwean dollars, while on the black market it can go for between 3,900 and 4,300, according to Bloomberg.

The Zimbabwean dollar has long been the least developed currency in Africa.

Zimbabwe scrapped its own currency in 2009, when it became worthless following hyperinflation in the country. In 2008, inflation was at one point 500 billion per cent, according to IMF.

After that time, the country used foreign currencies to trade, including the US dollar and the South African rand. Zimbabwe reverted to its own currency in 2019.

Zimbabwe’s finance minister, Mthuli Ncube, announced last year that the government would allow the use of US dollars for the next five years to help stabilize Zimbabwe’s currency. US dollars were allowed to be used to buy everything from food, fuel and medicine.

Hyperinflation

Zimbabwe has been characterized by high inflation for several years.

The political situation in Zimbabwe has led to many countries refusing to do business with the country, according to the UN. The situation developed into an economic crisis beyond the 2000s.

The central bank then started printing money to pay for public spending. This caused the prices of goods to rise and money to lose almost all its value, so-called hyperinflation.

The country has had several periods of hyperinflation. In June 2020, inflation was 837 percent, according to Bloomberg. In June last year, inflation was up to 192 per cent, while in May this year it had moderated to 86.5 per cent according to Trading Economics. Last winter, the country’s food prices had increased by as much as 285 per cent in one year.

The country’s key interest rate is currently at 140 percent, according to Trading Economics.

The authorities in Zimbabwe introduced gold coins last year in an attempt to curb the violent rise in prices.