Record returns in the Zimbabwe Stock Exchange (ZSE)

[Knighted]

While the country of Zimbabwe is enduring unheard of inflation at rates so high that they cause my TI-89 to emit smoke and flames, apparently the Zimbabwe Stock Exchange is doing quite well. In 2007, the Zimbabwe Industrials locked in a 12-month gain of +12,000%. That sure looks better than US stocks, bonds, or even gold at the moment. Are you surprised? Probably not, if you have heard anything of the hyperinflation that country has suffered. But here is the kicker: apparently, the Zimbabwe stock market has grown at a rate far greater than the consumer price index in the country. In other words, after adjusting for inflation, it's suggested that the Zimbabwe stock market is earning returns far in excess of anything we in our industrial countries have ever seen relative to its consumer goods.

I bring this up for a couple of reasons. One is that many judge the health of a nation's stock market to be indicative of the health of that nation's economy. But with 80% unemployment and half of the country starving, Zimbabwe is not exactly the ideal candidate for a healthy economy.

Another reason is that many people on the RP forums voice the opinion that investing money in the US stock market is a crap shoot and one should flee to hard currency like gold, for the end is nigh. But with some predicting the possibility of an economic collapse in the US akin to that of Zimbabwe, would the US stock market necessarily be a bad place to park one's money? Personally, i've associated large inflation bouts with poor relative stock market performance as seen during the 1970s oil crisis. But what if this is not the case when a government, such as Zimbabwe's and now ours, is intent on printing and injecting as much money into the system as possible?

 

[SevenEyedJeff]

I was thinking about this too. If the currency is going to be debased, wouldn't stocks of companies that are making things go up in value? It would be better than having money in T-bills or money market accounts if hyperinflation hit I would think.

If you read up on the Weimar republic, you will see that the stock market did rather well also. Their stock market index went from 97 to 26,890,000 during that period, so maybe good to own stocks?

http://www.nowandfutures.com/us_weimar.html

 

[Kludge]

Are there any stable investments in Zimbabwe though? It'd only take one slip-up to delay manufacturing a couple days and lose 20% or so of your net value.

 

[tremendoustie]

While the country of Zimbabwe is enduring unheard of inflation at rates so high that they cause my TI-89 to emit smoke and flames, apparently the Zimbabwe Stock Exchange is doing quite well. In 2007, the Zimbabwe Industrials locked in a 12-month gain of +12,000%. That sure looks better than US stocks, bonds, or even gold at the moment. Are you surprised? Probably not, if you have heard anything of the hyperinflation that country has suffered. But here is the kicker: apparently, the Zimbabwe stock market has grown at a rate far greater than the consumer price index in the country. In other words, after adjusting for inflation, it's suggested that the Zimbabwe stock market is earning returns far in excess of anything we in our industrial countries have ever seen relative to its consumer goods.

I bring this up for a couple of reasons. One is that many judge the health of a nation's stock market to be indicative of the health of that nation's economy. But with 80% unemployment and half of the country starving, Zimbabwe is not exactly the ideal candidate for a healthy economy.

Another reason is that many people on the RP forums voice the opinion that investing money in the US stock market is a crap shoot and one should flee to hard currency like gold, for the end is nigh. But with some predicting the possibility of an economic collapse in the US akin to that of Zimbabwe, would the US stock market necessarily be a bad place to park one's money? Personally, i've associated large inflation bouts with poor relative stock market performance as seen during the 1970s oil crisis. But what if this is not the case when a government, such as Zimbabwe's and now ours, is intent on printing and injecting as much money into the system as possible?

Wait, truly? I find this hard to believe, you're saying that Zimbabwe stocks are going up even faster than inflation? Does this reflect any improvement in the underlying economic situation, apart from inflation? Also, do you have links to the numbers you're using? Thanks.

Edit: Ok, now I'm confused -- here's a link saying Zimbabwe inflation is at 13.2 billion percent a month, far outstripping a 12,000% gain. http://www.telegraph.co.uk/news/wor...mbabwe-inflation-second-worst-in-history.html I can't find any readily available charts on "Zimbabwe Industrials" though. Actually, if inflation's that bad, 12,000% seems low.

 

[Knighted]

It's difficult to find recent information on Zimbabwe's situation, stock market or otherwise. One article I read was from 2006 citing the stock market's superior returns. Apparently the inflation rate at that time was much less than it is now. (Though at 900%, I don't think "less" is a very appropriate term)
http://www.guardian.co.uk/business/2006/apr/25/Zimbabwenews.internationalnews

The other article covering the Zimbabwe stock market is from mises in mid 2007. At that time the inflation rate was around 1700%.
http://www.mises.org/story/2532

No clue what the ZSE has done since then on a percent basis, but one article states that the industrial index recently closed at 5,785,301,278,304,520,000 points. Judging from that, i'd guess that the market is still keeping up or surpassing the inflation rate in the country.

 

[ThePieSwindler]

Are there any stable investments in Zimbabwe though? It'd only take one slip-up to delay manufacturing a couple days and lose 20% or so of your net value.

I don't think he's suggesting investing in Zimbabwe... just showing that hyperinflation doesnt necessarily preclude a poor stock market. Who knows what the actual cause is? Perhaps most Zimbabweans that have some money feel it is better to at least put it in stocks instead of currency to recoup some of the value lost each and every day from hyperinflation, and since they have billions and billions of zimbabwean dollars to place into stocks also listed in Zimbabwean dollars, the price shoot upwards due to this demand shock?

 

[acptulsa]

What a great luxury our great great grandparents enjoyed, to be able to learn the value of a dollar and carry that knowledge through their lives. Now I feel a bit like those Zimbabweans, and fear I will feel more like them all the time. What is this dollar worth now? Will it still get me a candy bar? Had I better unload it like a hot potato for fear it will shrink some more?

We need to find a way to express the sheer simplicity of such a system. What the dollar in your pocket will buy today, it will buy tomorrow--no rush. Is there a quick, anecdotal illustration of the beauty of sound money we can put to good use?

 

[Knighted]

*Bump*.

Curious if anyone has thoughts on whether the US market might react similarly to the ZSE (outperforming after inflation) if hyperinflation resulted from the actions of the Fed in the current crisis.

 

[The Grinning Maniac]

That actually very interesting, and not what I would have expected at all. It's definately worth looking into. One thought comes to mind though. Does Zimbabwe have an industrial base? Are they making things? I believe Germany made things back when it had its hyperinflation. Does production collapse during a hyperinflationary environment or stay the same?

In our situation, with all of our consumer goods being made elsewhere, I wonder if the same stock market effect would happen.

One is that many judge the health of a nation's stock market to be indicative of the health of that nation's economy. But with 80% unemployment and half of the country starving, Zimbabwe is not exactly the ideal candidate for a healthy economy.

Indeed. I wonder then, what the explanation behind the positive stock market returns would be. It's really rather bizarre. So perhaps the smart play would be to stay out of the stock market until a bottom, stay in for the beginning of the hyperinflation and then get out before the numbers are too high to calculate anything? I don't know.

 

[Chester Copperpot]

Im sure the stock market didnt outpace inflation.. it may have outpaced zimbabwe's CPI index.. of course THAT is probably as cooked as Americas CPI....

 

[The Grinning Maniac]

http://www.voanews.com/english/archive/2007-12/2007-12-26-voa42.cfm?CFID=85767646&CFTOKEN=85711859

The Reserve Bank of Zimbabwe has estimated that inflation over the past 12 months has totaled 24,000%, compared with its last estimated of 14,000% in October, this in a circular sent to financial institutions to help them close their 2007 books.

If the stock market return was 14,000% and the inflation rate was 24,000%, that's a negative return.

 

[tremendoustie]

I am certainly not yet convinced that the zimbabwe exchange is outperforming inflation.

 

[tremendoustie]

http://www.voanews.com/english/archive/2007-12/2007-12-26-voa42.cfm?CFID=85767646&CFTOKEN=85711859



If the stock market return was 14,000% and the inflation rate was 24,000%, that's a negative return.

This. And, this is for 2007, when inflation was much lower.

No clue what the ZSE has done since then on a percent basis, but one article states that the industrial index recently closed at 5,785,301,278,304,520,000 points. Judging from that, i'd guess that the market is still keeping up or surpassing the inflation rate in the country

But, inflation compounds. For example, if that 13.2 billion% per month inflation rate held for a year, and the index only matched inflation, starting at a value of only $1, the value after a year would be $2.7982542656501458535448576e+97, or 4.8368341267617118914661819095e+78 times the current value.

Now, I don't think inflation has been that high for that long, but the principle holds. The market could have easily gotten that high while not even coming close to keeping up with inflation.

 

[krazy kaju]

The ZSE is doing good because all of the money that enters the economy via the central bank enters the credit market first. This means that stocks will always rise in value before other things rise in value. In essence, the ZSE is in a perpetual asset bubble.

 

[IChooseLiberty]

My current opinion is that, yes, stocks are a hedge against inflation and buying stock is actually a short-dollar position; But, it's short-dollar characteristic is to a lesser degree than that of gold. A strong dollar would actually negatively affect stock prices.

 

[tremendoustie]

My current opinion is that, yes, stocks are a hedge against inflation and buying stock is actually a short-dollar position; But, it's short-dollar characteristic is to a lesser degree than that of gold. A strong dollar would actually negatively affect stock prices.

Yeah, I think stocks are a partial hedge. They're better than cash, but in hyper inflationary environment, business is not likely to do well. Thus, you'll lose purchasing power in stocks, but not as much as you'd lose in cash.

 

[The Grinning Maniac]

Agreed.

Another question has come to mind though. I wonder if there are any individual industries/businesses in Zimbabwe that are doing better than the broader stock market and running higher than inflation, based on the sheer necessity of the sector. Say, investing in toilet paper factories and water, for a cheeky example.

I remember noticing that during the plunge of the Dow, Halliburton and Budwiser were still doing quite well.

EDIT: Though apparently now Halliburton is in the shit too. Oh well. hahah