Taking Stock: There is money to be made on the ZSE

28 May, 2021 - 00:05 0 Views
Taking Stock: There is money to be made on the ZSE

eBusiness Weekly

Kudzanai Sharara

Is there money to be made on the stock market? A senior executive always asks me this question every time we meet.

My answer has always been yes Sir, people are making money on the Zimbabwe Stock Exchange.

But the fact that he has asked me this question several times means that he has not yet taken the time to start his investment journey.

Or apart from listening to me and reading what I write on various platforms, he has not taken time to look or digest the facts whether people are indeed making money on the stock market.

To put it differently, maybe he does not know where to find the information or he does not know how to process it.

There are many like him. They hear about stock markets. They watch and read the news about the stock markets, but no one has ever simplified how it all works.

All they hear are numbers. The share prices. The gains. The losses. No one has attempted to break these numbers down to them.

All they hear are the terms and phrases. The stock market is rallying. It’s a bull run. The bears are dominating. No one has attempted to simplify these words and phrases to them.

Interestingly even some executives sitting in their boardrooms do not know how the stock market works. Some of them even work for listed companies, but they have never bothered to invest in the shares of their companies.

Even when they do excellent work, that moves the share prices of their companies, they never benefit from the share price movement because they don’t own any shares.

I digressed from today’s topic. Today I want to address the question, is there money to be made in the stock market? More specifically, I want to address the question, are people making money on the stock market?

On the first question, yes there is money to be made on the stock market. And losses too. One can make money on the stock market by selling at a higher price than they bought at. Simple!

When the company is invested in pays a dividend, the investor also makes money.

To lose money on the stock market you just have to do one thing — sell at a price lower than you bought at. Investors also lose money when their gains are below the inflation rate and also when the share price has lost value in real terms through the movement of the exchange rate. Sometimes listed companies also become insolvent and shut down.

The second question refers to the now. Are people making money on the ZSE? The simple answer is yes they are. On average ZSE investors have made serious money this year alone.

Let’s just focus on the month of May 2021 for simplicity’s sake. When we started the month of May 2021, the overall value of the ZSE was $536,528 billion. What this means is that, if one was the owner of all listed shares on the ZSE, the value of those shares, if they were to be sold on that day, the owner would pocket $536,528 billion.

Likewise, the buyer on that day would now own shares or assets of the same value.

Fast forward to May 26, if the new owner was to sell all those shares, the new buyer would have to fork out $641,396 billion. That would be an additional $104,8 billion or a 19,54 percent profit to the seller.

Of course, this gain is nominal. There is a thing called inflation and it erodes value.

The other things one could have bought with the original $536,528 billion might have had their prices increase. Its possible that the $641,396 billion could fail to buy the very same things one could buy with $536,528 billion less than a month ago.

However, in this case, the price increases or inflation was way below the 19,54 percent gain on the market. Latest figures show inflation at 2,5 percent in May.

If you adjust the stock market gains for this inflation, you will still be left with real returns or gains of 17,04 percent in one month alone. So in the short term, it is proven that people are making money on the stock market.

Some would also want to look at this month’s gains in US dollar terms, using the parallel market exchange rate of course.  I am not sure what parallel market rates were at the beginning of May 2021, but we can settle at 120.

As of the time of writing, the average street rate was 135. Using a parallel market exchange rate of 120 at the beginning of May, the ZSE’s value of $536,528 billion would be US$4,47 billion, and using the current average exchange rate of 135, the ZSE’s current value of $641,396 billion is $4,75 billion.

That would give an average gain of 6,2 percent in US dollar terms, which is more than the month-on-month Blended Inflation rate of 1,8 percent in May 2021.

How about we look at the performance on a year-to-date basis. Since the beginning of the year, have people made money on the stock market.

At the start of the year, the ZSE was valued at $317,8 billion, and now it’s valued at $641,1 billion. That gives investors an average return of 101,70 percent. That return is not less than 50 percent in US dollar terms. It is also much higher than the year-to-date inflation of just above 20 percent.

Let us now look at the ZSE’s year-on-year gains. This time last year the ZSE was valued at $195,697 billion and at $641,396 billion, it has gained by 228 percent which compares favourably with year on year inflation of 161 percent at the last count in May 2021.

According to the website marketwatch.co.zw on May 26, 2020, the parallel market exchange rate was 70 percent which puts the then ZSE market cap of $195,7 billion at US$2,79 billion. Subtracting that US$2,79 billion from the current US$4,75 billion gives a year-on-year gain of US$1,96 billion. A return of 70 percent in US dollar terms.

So yes indeed, there is money to be made on the ZSE. We have not even factored in the compounding aspect of investing. We have also not factored in the trading opportunities and portfolio adjustments that investors could do along the way in search of better returns.

Some investors could have also picked the top performers. Some selected counters have year-on-year returns above 1,000 percent. NTS has a year-on-year return above 32,803 percent. Unifreight has a year-on-year gain of 11937. Imagine picking those as your investments. It will end in wealth!

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