Due to this, some investors are stepping back in to scoop up consumer-oriented African growth plays.
A rebound in the southern African country's economy between 2010 and 2012, after a decade-long slump, spurred Zimbabwe's benchmark industrial index to a record high 233.18 points last August.
Disappointing economic growth since then in the country, rich in gold, uranium, platinum, diamonds and coal, has deterred investors, until recently.
After hitting a trough in April, the benchmark has rallied seven per cent in the past six weeks to just above 177 points and foreign investors, who account for about 60 per cent of activity on the Zimbabwe Stock Exchange, bought a net 37 million dollars in shares in January-April, latest exchange data shows.
(READ MORE: Zimbabwe Stock Exchange market growth to continue)
“The big attraction is that valuations have been falling, reviving opportunities for investors who have not traditionally invested in Zimbabwe to buy stocks at really good prices,” said Grant Flanagan, managing director at Amigo Partners, which has a Zimbabwe-dedicated equity fund.
“Despite the overriding strain the economy is taking at the moment, the very good businesses will continue to grow stronger and they make a compelling investing case.”
The World Bank predicts Zimbabwe's economy will expand by three per cent this year, half the government's forecast of 6.4 per cent and compared with 10.5 per cent growth two years ago.
As businesses grapple with electricity and capital shortages, and the mining sector remains susceptible to changes in government policy, equity investors continue to be highly selective on Zimbabwe.
They prefer the country's biggest consumer-oriented companies such as mobile phone service provider Econet Wireless, brewer Delta, an affiliate of SABMiller, and food retailer Innscor, which are seen as well managed and have an expanding consumer base.
A weak South African rand is also benefiting the consumer sector as South Africa is the source of most of Zimbabwe's imports.
Polarisation of the stock market has been a trend since foreign investors returned in force after the country abandoned the Zimbabwe dollar in favour of the US dollar in 2009 to overcome hyperinflation.
(READ MORE: The return of the Zimbabwean dollar)
The industrial index has rallied 70 per cent since 2009 while the mining index has sunk by a similar margin, hit by President Robert Mugabe's Indigenisation and Economic Empowerment Act in 2008.
The law, which forced foreign mining companies such as Rio Tinto and Anglo American Platinum to sell at least 51 per cent shares to blacks, continues to create uncertainty and the mining index, which includes Rio Zimbabwe, has plunged 27 per cent this year.
Finance Minister Patrick Chinamasa said last week that Zimbabwe will demand 100 per cent local control of its minerals and land under planned changes to the empowerment law.
Shares of dominant mobile operator Econet have gained 11 per cent this year. Innscor and Delta have dropped 10 and 16 per cent respectively, but investors cite all three among their preferred stock picks.
They are leaders in their respective sectors and have adapted to slower economic growth.
Innscor has a diversified business within Zimbabwe and fast-food outlets in six other African countries. Delta has shifted focus to a cheaper sorghum-based beer, Chibuku, as demand for high-margin lagers was hit by the economic slowdown.
Foreign fund managers also like South African clothing retailers Edgars and Truworths. Edgars targets government workers because it has an agreement with the government salaries bureau to debit wages every month for goods bought on credit, avoiding the risk of non-payment.
“You must buy stuff that people hate,” said Andrew Lapping, portfolio manager at asset manager Allan Gray. “Don't think about the bad stuff, think about the opportunity. I find the opportunity exciting that I can buy these stocks cheaply.”
Cape Town-based Allan Gray has two Africa funds with 25 per cent invested either in Harare-listed stocks or in companies with operations in Zimbabwe but listed elsewhere.
(READ MORE: Slight improvement in Zimbabwe’s economy)
A contrarian investor, it also favours some banks and oil companies in Nigeria, Malawi's Press Corporation and Egyptian telecom firms.
Harare's total stock market capitalisation, at 4.47 billion dollars in April, has more than halved since 1997 before the economy began a downward spiral on concerns over President Mugabe's economic policies. Many investors are still staying away.
Zimbabwe's industrial index trades at a current price-earnings ratio of 16.59, above 14.16 in 2013, although it is cheaper than Kenya's benchmark NSE20 index at 17.1, for example, according to brokers.
Zimbabwean companies are struggling to find the cash needed to jump-start activity and the private sector is not exporting enough to supply the much-needed dollars.
The country, however, has managed to keep inflation down, mostly in single digits, after hyperinflation, estimated at 500 billion per cent in 2008, forced it to give up its currency.
Investors are also betting that aid flows will resume, giving the economy a boost.
The European Union in February lifted more sanctions on Zimbabwe, imposed in 2002 in protest at human rights abuses and violations of democracy, and is expected next year to start channelling development aid directly again.
“We feel this is the bottom as we are not going to be at this level going forward,” said Tino Kambasha, executive director at Harare-based stockbrokers Imara Edwards. “It is a buying opportunity at this level, given the regional comparisons.”