Zimbabwe’s lesson for Western stock exchanges
Posted on April 12, 2007 by Richard Beddard
Filed Under Markets |
How can the Zimbabwean Stock Exchange be the world’s best performing exchange when the country’s economy is disintegrating? John Paul Konig of the Ludvig Von Mises Institute explains.
As the government prints money fuelling hyper-inflation it works its way to the stock market first. Prices are rising there three times as fast as they are in shops and markets. People speculate because there’s nowhere else to put their money.
It makes Mr Konig ponder how much 25 years of growth in Western stockmarkets is down to wealth creation, and how much it’s down to our loose central banks:
Perhaps stock prices have increased faster than goods prices for the last twenty-five years because, as in Zimbabwe, Western stock markets have become one of the principal entry points for newly printed currency.
Postscript: Judging by the comments on the Mises.org Weblog and this article it seems that rising prices doesn’t necessarily mean rising returns. Adjusting for inflation and currency changes, most investors are losing out.
Also: A chart showing returns this year from indices across the globe.
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[...] post at Interactive Investor Blog on the nominal good performance of Zimbabwe’s stock exchange, is a useful reminder of the importance of real returns. This works both ways, and is why equity [...]
it must be made clear that the zimbabwean situation is a unique one. take a harvard economics professor and ask them to predict the direction of the zimbabwean economy and you will get a dismal failure. You only have to be inside the pot to understand how hot the soup is.
tell you what? an investment on the Zimbabwean stock exchnage for someone in Zimbabwe is a very good take
scenario 1 fuel cost $15 000 in january
cost $40 000 in april
now at z$61000
take some of the companies on the stock market and you will see how inflation is lagging behind the stocks.
zimbabwe has a very strong and vibrant informal sector which is highly mobile and travels to shop in China, dubai, south africa ,
Has one of the largest skilled migrant labour
resource in South africa, Botswana, Mozambique
not to mention the unskilled labour and those who are in the United Kingdom.
The US$ is the silent medium of exchange here
everything depends on it from fuel, to bread you name it.
The bearer cheque is but the solution to the phenomenon. while you can’t trade it in any other country and exchange it for cash, in zimbabwe its business as usual. remember the the the inflation in germany (they should have introduced bearer cheques.
[...] a quickie. An old post about the Zimbabwean stock exchange, and a new perspective from inside [...]
I’d like to know more about the zse , what it contitutes , its importance and how the government can try to improve it.