By Oliver Kazunga
Consultations are under way following Government’s decision to suspend trading on the Zimbabwe Stock Exchange (ZSE) amid concerns the bourse was being abused by some players to manipulate the exchange rate.
The ZSE and mobile money platforms have been singled out as vehicles being used to undermine the economy through tinkering with the exchange rate to sabotage the economy by fostering illegal exchange rates and currency trade.
Finance and Economic Development chief director of communications Mr Clive Mphambela said: “lt’s a very difficult question because as we all know that suspension was a Cabinet decision so l really cannot comment. What l can certainly say is that there are consultations that are happening on the background to clarify the matters.
“Markets just have to exercise patience and due caution. Appropriate communication will be made soon.”
Securities and Exchange Commission of Zimbabwe chief executive officer, Mr Tafadzwa Chinamo, is yet to comment on the matter. In a separate interviews, financial market analysts said the decision to suspend activity on the ZSE has negative implications to the money markets and the economy at large.
Financial market analyst Mr George Nhepera said traditionally the ZSE is used as a destination of capital from international investors as well as source of capital by local companies.
“However, in recent weeks and months, it has become more of a proxy for the determination of parallel exchanges rates, which in my view was negatively affecting the pricing of goods and services,” he said.
“The impact of trading on the ZSE could be negative from the standpoint of investors but governments all over the world including central banks have the public mandate and duty to ensure price stability in their sovereign countries hence the temporary suspension of the ZSE.”
Mr Nhepera said he believed the move was meant to allow new operational modalities to be introduced by the Government with the sole aim of restoring the ZSE to its rightful purpose in the financial markets.
Economic commentator, Professor Gift Mugano, said the suspension of the ZSE was a bad move on account that this was locking out portfolio investments.
“So, once you lock portfolio investments out, you are creating a problem as you are driving out the capital to drive the economy and also you need to take note that the stock exchange is a capital market where those looking for equity financing go.
“When you close it you are clearly shutting that opportunity or platform where you can mobilise funding or capital, which is a problem,” he said.
Prof Mugano said the other issue linked to investment was that the suspension of trading on the ZSE impinges on respect for property rights.
“We might not have that intention as we are doing it, but when investors are reading, they see it as lack of respect for property rights and remember its happening again for the second time in 10 years or so. Its a wrong signal and investors will become very elusive as they fear that if they come to Zimbabwe they can get stuck anytime,” he said.
Prof Mugano said even people who were buying shares on the local bourse and trying to hedge against inflation were now on a pause.
He said domestic investors will also shun the stock market in future which is detrimental to the economy.
“The other point is that there is a very close link between the money markets and capital markets. They mirror each other because if there is excess money in the money markets, it can be put on the stock market and vice versa. So, when you close it (ZSE), you are leaving the other market standing on one leg,” he said.
“A stock market is kind of a dashboard of the economy, it shows you the fundamentals and when stocks are gaining, it also reflects on production issues and things like that. So, once you close it, it’s like you are driving a car without a dashboard and the risk is you don’t know at what point are you going to be singing.”
Prof Mugano said the Government has to reconsider the ZSE suspension and if there is any moral hazards within the stock markets, its important to deal with individual counters than to take a blanket approach.
Another economic commentator and financial analyst, Mr Trust Chikohora said the Government is trying to deal with the exchange rate issue in terms of the free fall of the Zimbabwe dollar exchange rate against the United States dollar because the exchange rate was going up everyday.
He said because most of the goods and raw materials that the country consumes are imported, this means that if the exchange rate goes up, prices of goods and services also spike leading to hyperinflation.
“However, l do not believe that a move such as suspending the Zimbabwe Stock Exchange is good and neither do l believe that it will address the problem, it will not. The stock exchange is a measure of economic activity in an economy and if you suspend the stock exchange then you are groping in the dark.
“It’s as if you are suspending the economy and it then sends the wrong signal altogether. The exchange rate is not driven by the stock exchange, it is driven by the fundamentals in the economy,” said Mr Chikohora.
The fact that people have no confidence in the Zimbabwe dollar, he said was the reason behind the movement of the exchange rate.
“The fact that Zimbabwe has no reserves to defend the currency means that the local currency will be on a free fall. We have always said that the Zim dollar was brought back prematurely because all over the world, exchange rate is regulated by reserves of foreign currency. In Zimbabwe we do not have the reserves, our production is low, tourism is low, we have no balance of payment support,” he said. The Chronicle