Huge drop in US dollar value of Zim stock exchange impacts pension funds

The loss in value of stocks on the Zimbabwe Stock exchange is especially impacting those pension funds heavily invested in the equities market.

The Insurance and Pension Commission, which regulates the Private Occupational Pension Schemes and the Individual Pensions Policies, indicated in its second quarter of 2019 report that 43.74% of these assets were invested on the stock market as at June 2019.

The Zimbabwe Stock Exchange (ZSE has lost a total of US$18bn in value since the government decided to drop a parity peg to the US dollar in February this year.

In January 2019, before the drop of the parity peg, the ZSE was valued at US$20.8bn – an all time high.

At the end of October this year, the ZSE’s market capitalisation was valued at US$1.9bn. This is despite the ZSE’s market capitalisation having gained 50% in Zimbabwean dollar terms to Z$30.4bn.

Since 2009, Zimbabwean stocks had been trading in US dollars. It, therefore, offered limited currency risk to foreign investors as the parity peg kept the exchange rate between the local currency and the US dollar at an equal value of 1:1.

That ended when Finance and Economic Development Minister Mthuli Ncube announced currency reforms in February.

Having started 2019 opened at a 1:1 parity with the US dollar, the Zimbabwean dollar has since lost 85% in value against the greenback.

As part of the currency reforms, the use of foreign currency was banned for all local transactions. This meant stock market investors lost value in real terms due to the depraciation of the local currency.