Investors dump Zimbabwe Stock Exchange, flee for safety of cash

By Gift Phiri

Fund investors have been pulling out of the risky Zimbabwean stock market at an alarming pace over the last 10 months, against the background of cash and liquidity challenges, weak total demand for goods and services in the economy and reduced business confidence.

Investors pulled $55 million from the Zimbabwe-based stock funds during the 10-month period ended October 31, fresh data showed.

That was the most pulled from the funds in recent years, with investors also put off by astronomical transaction fees charged by the Zimbabwe market — presently the highest levied by any other market in the Sadc region.

The delayed introduction of bond notes also brought dire predictions of economic fallout.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya stated in his Mid-Term Monetary Policy Statement in September that bond notes were a zero coupon debt instrument which would trade along nine other foreign currencies.

Yet those fears eased in the days after the introduction of the surrogate currency on Monday, November 28.

The legal tender, which came into circulation by force of diktat, have so far been widely accepted as payment for goods and services, with the currency managing so far to hold its value against the US dollar.

All banks have also witnessed an encouraging uptake of bond notes since their introduction, according to the president of the Bankers Association of Zimbabwe (Baz), Charity Jinya.

The new currency has, however, ignited a rush on the banks while shortages of greenbacks and problems re-calibrating ATMs to fit the new bond bills have seen hours-long queues form outside banks nationwide.

Fund investors on the ZSE — currently based at 44 Ridgeway North in Highlands — fled stocks ahead of the introduction of bond notes as the ZSE index recorded a sharp slump in stock market activity that saw turnover for the 10 months to October 31 down to $144,46 million, 29 percent lower compared to the same period in 2015.

Similarly, foreign-based funds invested in Zimbabwean stocks posted a 51 percent slump in foreign purchases from $111,25 million for the 10 months in 2015 to $55,01 million in 2016 — precipitous months of outflows and the largest in recent years.

High-yield bond funds, which often move in tandem with stocks, also recorded large outflows. And debt funds did not return cash to investors.

Industrial and mining indices remained on a downward trend for most of the year before experiencing substantial gains in October 2016 which pulled up both indices for the 10 months to October 2016.

However, many investors noted that equity markets were already starting to claw back liquidity-fuelled losses.

The Industrial Index was up 22 percent, whilst the Mining Index was up 27 percent in October 2016, as investors switched portfolios from the money market.

The gains in both industrial and mining indices during the month of October 2016 saw a strong 22,1 percent surge in market capitalisation to $3,33 billion as at October 31 from $2,73 billion in September.

“Investors have been trying to find places to hide,” stockbrokers told the Daily News.

A recent ZSE annual general meeting (AGM) expressed fears about profitability as the bourse tried to shrug off economy worries.

“The decline in market turnover had a significant impact on the profitability, which declined from a surplus of $0,338 million in 2014 to a deficit of $1,101million incurred during the financial year ending December 31, 2015,” minutes of the ZSE AGM show.

Despite the gloom, the top five performing stocks on the ZSE were Art Corporation — the holding company of battery manufacturer Chloride, ballpoint pen maker Eversharp and Softex which manufactures tissue products — which recorded 200 percent increase for the year-to-date; Padenga Group, which is into crocodile farming, were second with a year to date increase of 81,11 percent;  RioZim — an integrated mining company with a diverse portfolio of resources in gold, base metals, diamonds, coal and chrome — its share performance recording 68,08 percent increase year-to-date; while diversified financial services group Old Mutual also landed in the top five gainers in the year thus far, with a 53,38 percent year-to date-increase; and lastly Colcom’s (engaged in the processing and marketing of pork and other protein-based food products, including beef and chicken) share price rising by 41,2 percent year to date.

Going forward, the government has said the thrust will be on improving the competitiveness of the ZSE to attract foreign investments, particularly in the face of stiff competition from other African exchanges.

“Central to this will be reduction of the relatively higher transaction fees charged by the Zimbabwe market, currently the highest levied by any other market in the Sadc region,” Finance minister Patrick Chinamasa said last Thursday in his 2017 spending plan.

“This will leverage on the automation of the ZSE platform, roll out of new products, and improved information dissemination to the investing public.

“Furthermore, the introduction of the bond market and the Zimbabwe Emerging Enterprise Market will provide platforms for government, quasi-government institutions, corporates and the small to medium enterprises to raise long term debt capital.”

Government was also exploring Alternative Trading Platforms after buying a flawed electronic trading system from Butah instead of acquiring a Mauritius system, which could have paved way for ZSE to join the World Federation of Exchanges.

“The development of the regulatory framework for the Alternative Trading Platform (ATP) has since been gazetted, paving way for the launch of the ATP by Financial Securities Exchange,” Chinamasa said.

“The ATP is a lower securities exchange, developed to facilitate the trading of securities not listed on the ZSE main bourse for example, Employee Empowerment Schemes and Community Share Ownership Trusts allotted under the Indigenisation and Economic Empowerment policy.

“The launch of the ATP presents an opportunity for the listing of shares currently being traded Over-the-Counter.

“It is encouraging to note that Old Mutual Zimbabwe has become the first company to embrace government policy, through listing its empowerment shares on the ATP”

Government was keen to reverse outflows.

Stockbrokers said the withdrawals leave money on the sidelines that could be redeployed in stocks in the coming weeks.

For now, a global strategist at a Harare-based capital management firm, which oversees millions of assets, said investor aversion to risk in recent months stems from “uncertainty and worries” about slowing growth. Daily News