As some stock exchanges, Kenya and South Africa, around Africa are taking a bear turn an unlikely bourse is on a bull run and going even stronger. The Zimbabwe Stocks Exchange {ZSE} has ballooned to phenomenal levels as a result of the bullish patterns dominating the stock market this year. Most of the counters in ZSE have recorded enormous gains with the mainstream industrial index growing by over 600 percent.

Despite the big economic crisis that has been facing Zimbabwe; the ZSE has managed to post very impressive performance two years in a row, 2005 and 2006, beating the high inflation rate that plagues the country according to The Africa Stock Exchanges Association (ASEA). Thanks to the on going stocks rally, the ZSE market is now worth a staggering Z$405 trillion in market capitalization, after rising a steep 275 percent in just three days this week. 

While market capitalization (value of a company calculated by multiplying the number of shares in issue by the current stock price) does not reflect the actual performance of a company, it provides a useful guide to movements in the share price of a listed company. The huge increase in the market capitalization of the 75 listed companies in ZSE suggests, obviously, that the amount of trade is so high. This begs the question; why does the ZSE perform so well when everything is apparently in turmoil?

Ideologically, a country’s stock market performance should reflect the performance of the economy. But in the case of Zimbabwe, this does not apply. Institutional investors and individuals from South Africa and Britain are simply eyeing the stock market in the belief that prices will soar if and when Mr. Mugabe steps down and investors regain confidence in the country. This has therefore led to a mad rush for the listed stocks, making the market to have an exceptional bull run in a slump economy.

Further more, negative interest rates and inflation have caused a stampede for assets, which have driven share prices to record highs, even in real terms. To these investors – both legitimate and crooks – the early bird catches the worm, and in this case there are too many birds that came in early. The ZSE boom simply reflects profits that have been made on paper while, on the ground, several businesses have gone bankrupt. This pseudo profits, for the foreign investors, could yet vanish into thin air because of currency controls that make it difficult to take money out of the country.

The stocks rally may also be because there are very few investment options that can provide real returns in Zimbabwe. Most of the other investment options like mining and land ownership lost their value after most of the European investors moved out due to the turbulent political climate in the country. Hard-line policies by the Zimbabwe government created an inherent risk that most investors were left with the stocks market as the only viable investment.  Investors know where good returns are, and the ZSE is one of them. This is why it’s performing above all markets in Africa.

The ZSE’s future in the short run indicates a continued upside. Equities are the only other best form of investment in a hyperinflationary environment such as the one existing in Zimbabwe. At the moment, there is no reason for an immediate stop in the Bull Run. But as the demand for stocks continue to sore, the market capitalization will eventually reduce. Stocks which are absurdly overvalued will lose more than proportionately when normalcy returns and the market may even be faced with an eminent crash.

The viability of the decision to invest in the future of Mugabe’s tenure in power is simply a wrong investment factor. It is not a good sign for the ZSE, especially for a country whose economy is indicating otherwise. It’s only a matter of time before the stocks market follows the downward trend that the Zimbabwe economy has taken, and when that happens there will be no redeeming of losses.