This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS HARARE 000763
SIPDIS
STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR FLORIZELLE LISER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON
E. O. 12958: N/A
TAGS: EFIN ECON ETRD ZI
SUBJECT: Zimbabwe's Stock Market: Illusory Gains
1. Comment: Even though headlines boast of huge
windfalls for equity investors, share prices on the
Zimbabwe Stock Exchange (ZSE) have sunk in real terms
since 1998. Apparently, the country's high inflation and
macroeconomic distortions have duped wishful traders.
End comment.
ZSE in Nominal Terms
--------------------
2. In local currency (and nominal) terms, the ZSE's
industrial index appears to have risen sharply over the
past five years:
1/98 - 7,896
1/99 - 7,068
1/00 - 16,774
1/01 - 26,354
1/02 - 46,149
1/03 - 134,416
. . . and more recently:
4/03 - 187,000
ZSE in Real Terms
-----------------
3. Conversely, the index has shed 20 percent since 1998
in inflation-adjusted Zimdollars. Yet Zimbabwe's
Consumer Price Index is a conservative inflation measure.
It reflects products unavailable at controlled prices as
well as subsidized fuel, food and energy. Therefore, we
consider dollarization a more dependable deflator. By
converting the index into U.S. dollars at the above
intervals, we see that its value has fluctuated wildly,
but fallen:
1/98 - 471
1/99 - 191
1/00 - 409
1/01 - 374
1/02 - 134
1/03 - 84
4/03 - 138
Both rising revenue projections for exporters (the
official rate has devalued from 55 to 824:1) and a
Zimdollar recovery (from 1605 to 1360:1 since Jan. 1)
seem to have triggered recent bullish sentiment, pushing
the index up this month.
Comment
-------
4. As we have often argued, high inflation and
macroeconomic distortions play tricks on Zimbabweans,
making them feel less impoverished than objective
analysis would suggest. Equity investors are no
exception. (Many Zimbabweans also believe their
automobiles are gaining value, a similar illusion.)
5. Undoubtedly, fortunes have been made in the ZSE. With
daily fluctuations reaching 20 percent, it's a day-
trader's paradise. But it has not been a reliable haven
for buy-and-hold investors. Many would have done better
hoarding U.S. dollars. Of course, it is unsurprising
that listed companies have lost value while the economy
has retracted 30-40 percent. In a "normal" economy,
Zimbabwean blue chips might tempt value-oriented
investors (with price/earnings ratios often around 4-8).
But in an economy plummeting by over a percent each
month, the ZSE remains a speculator's play.
Sullivan