Zim equities are almost more Bitcoin than Bitcoin

Harare - Look before you leap. Zimbabwe's political shake-up isn't exactly the first step on the road to investment. 

A jump of 390% year-to-date in the benchmark Zimbabwe Industrial Index, which has a market capitalisation of $14.5bn and excludes mining companies, looks fabulous news for frontier funds invested in what used to be called Africa's bread-basket.

It's held on to those gains even as the military seizes power. It might be tempting to watch for a dip as a buying opportunity. 

Zimbabwe's YTD benchmark equity gain 390%

The problem is getting your money out. After some serious hyperinflation, the country abandoned its own currency in favour of the US dollar in 2009, and it has become increasingly more difficult to extract capital. Foreign investors have been trapped in their holdings for most of this year, unable to exit or cash in what look like huge profits.

Stocks have become Zimbabwe's version of Bitcoin. Meanwhile, Bitcoin's version of Zimbabwe seems to be having a good day. 

It's a similar picture for the MSCI Zimbabwe index, which has jumped 420% this year. The index consists of just two companies; a drinks conglomerate called Delta Corporation and Econet Wireless Zimbabwe.

There is a serious scarcity of cash, and bank deposits, in Zimbabwe's broken economy. Equities are the only viable means of exchange, but this has pushed prices through the roof.

The country's shares are trading at a 475% premium to cash, according to an Exotix analysis of Old Mutual data. That difference has to collapse for there to be any chance of Zimbabwe normalising.

Injections of new funds into the system should reduce the excessive equity valuations. But the International Monetary Fund, or any other foreign investor into specific companies or projects, will need to be certain that the economy and banking system can function before being able to help or inject capital. That may be a long way off.

It is not certain that President Robert Mugabe will even be removed from his titular post - he remains revered within his country. This is not a grass-roots revolution but a succession plan aimed at preventing a dynastic handover to his wife.

Until Zimbabwe allows for the return of capital, only the very well-informed, or the very brave, should think about diving in. 

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Yes. We need the money.
11% - 839 votes
It depends on how the funds are used.
74% - 5569 votes
No. We should have gotten the loan elsewhere.
15% - 1117 votes