Zimbabwe Markets Roiled as New Tax Triggers Panic Buying

Zimbabwe’s markets have been roiled after a tax increase last week triggered panic buying of gasoline and spurred individuals to turn to equities as a refuge against rising prices.

The value of bond notes — introduced two years ago amid a shortage of hard cash in a country that doesn’t have its own formal currency — has plummeted. The southern African nation accepts them and a range of currencies, including the dollar, euro and rand, as legal tender.

It now takes 2.8 bond notes to buy one U.S. dollar, which is the weakest exchange rate on record, according to the Zim Bollar Index, a local website. In early September the rate was 1.75. Bond notes had the same value as greenbacks when they were first printed.

The stock market is also signaling increased stress in the financial system. The main equities index rose 8.7 percent last week to its highest since November, when the military ousted long-serving ruler Robert Mugabe, who oversaw the economy’s collapse. It gained another 7.5 percent on Monday.

In Zimbabwe’s skewed markets, rising stock prices are a sign that foreign-currency shortages are worsening. Local traders pile into equities when bond notes depreciate and they fear inflation will accelerate. It’s a phenomenon that’s forced foreign investors including Franklin Templeton, JPMorgan Chase & Co. and Allan Gray — who can’t repatriate their money because of strict capital controls — to write down the value of their assets.

One way analysts assess how out of sync Zimbabwean equities are is by measuring the difference between the London and Harare stock of Old Mutual Ltd., Africa’s largest insurer. The Harare shares are now 3.8 times the price of those in London, when converted to dollars. That’s the widest gap since November.

Zimbabweans have stocked up on goods after the authorities increased a tax on money transfers to 2 cents per dollar, from a flat rate of 5 cents per transaction, at the beginning of the month. Vehicles formed long lines at fuel stations over the weekend, prompting the head of the national oil company to say there’s enough gasoline to last six months and the hoarding “is uncalled for.”

On Sunday, the central bank said it was drawing down part of a $500 million credit line from the African Development Bank to pay for imports of fuel, electricity and wheat.

The weakening of bond notes “is being caused by some people bent to dupe the public of their hard-earned income,” said John Mangudya, governor of the Reserve Bank of Zimbabwe. “The opportunists are manipulating foreign-currency parallel-market rates to cause unnecessary panic and despondency.”

The pain comes as the new government of President Emmerson Mnangagwa, a longtime ally of Mugabe who won elections in July, tries to fix the economy and attract foreign investment.

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