Zimbabwe’s ‘fear gap’ returns as currency crisis continues

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Zimbabwe’s so-called fear gap has returned as the country’s currency crisis shows little sign of abating six weeks on from the disputed elections.

Stocks in Harare have long traded above their fundamental value. Zimbabweans are rushing into the market to buy shares as a hedge against inflation, which is accelerating as the government prints bond notes in response to a cash shortage.

One of the main ways investors measure how out of whack Zimbabwean equities are is by taking the difference between the London and Harare share price for Old Mutual, Africa’s largest insurer.

The stock listed in Harare is now more than three times the price of the UK shares when converted to dollars. It was less than double the price back in February, when confidence was high following the ouster of then president Robert Mugabe in November 2017.

The surge in demand has driven the main equity index up 26% in 2018, the second-biggest increase globally. That contrasts with the sell-off afflicting emerging markets from China to SA and Brazil.

The government had hoped that the July 30 elections would mark a turning point for Zimbabwe and lead to much-needed foreign investment. That is not happening yet.

New finance minister Mthuli Ncube plans to settle Zimbabwe’s arrears on about $1.8bn of external debt and build foreign reserves.