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ZSE reopens amid $240m loss

by Staff reporter
02 Aug 2020 at 09:21hrs | Views
THE Zimbabwe Stock Exchange (ZSE) will resume trading tomorrow after a month-long government shutdown that saw the bourse losing at least $240 million in potential revenue.

On June 29, the government ordered the ZSE to suspend its operations claiming that some counters were involved in illicit financial activities that threatened the local currency.

At the time, market capitalisation was at $228,577,092,720 and turnover was at $301,063,715.15.

The ZSE platform handles daily transactions of more than $10 million and this means that the 24 days of trading that were lost during the shutdown; the bourse could have made $240 million.

Three major stocks on the ZSE Old Mutual, PPC and Seedco International would remain suspended after a government investigation revealed that while there was no direct involvement of the listed entities in the alleged illicit financial activities, there was a strong link between price behaviours and transition patterns on the three counters.

The three counters are the only fungible stocks on the ZSE.

Zanu-PF hawks demanded that Old Mutual must delist from the ZSE after accusing the financial services giant of fuelling "runaway inflation through illegal parallel exchange market rates".

In March, Treasury banned the trading of fungible shares listed on the ZSE for 12 months.

As such, investors will not be able to transfer shares in Old Mutual, PPC and SeedCo International across borders during this period.

Old Mutual is also listed on the Johannesburg, Namibia, Botswana and London stock exchanges.

The local market has been using the Old Mutual Implied Rate (OMIR) as an indicator of the value of the Zimbabwe dollar against the greenback.

OMIR is a comparison of the prices of shares of insurer Old Mutual Limited in London and Harare.

Market watchers say the heavyhanded decision by authorities could diminish government revenue from transactions on the bourse.

Victor Bhoroma, a Harare based economist, said the prolonged suspension of the ZSE would come at a cost to the economy.

"The suspension points to government's lack of appreciation of the importance of institutions and upholding of property rights, rule of law and free movement of capital to economic growth," Bhoroma said.

"The ZSE suspension has dealt a major blow to future prospects of attracting foreign investment into the economy as it shows gross violation of property rights for the hundreds of investors and businesses, who derive value from the ZSE operations.

"Institutional investors such as pension administrators and insurers are counting their losses daily.

"Remember Zimbabwe attracted US$259 million in foreign direct investment in 2019 and about US$71 million of investment in the first half of 2020.

"In the first quarter of 2020, foreign investors bought a monthly average of just above US$1 million worth of shares on the local bourse and that figure will rapidly decline when the exchange opens. Foreign investor confidence has been dashed."

The Investment Professionals Association of Zimbabwe (IPAZ) a professional body made up of Chartered Financial Analysts (CFA) and members of the CFA Institute domiciled in Zimbabwe and in the diaspora in a recent report said it was not the ZSE, Old Mutual Limited, PPC or Seedco International's listing status nor the OMIR that were responsible for runaway inflation and the rapid depreciation of the local currency.

IPAZ said if indeed Old Mutual Limited was being used by certain individuals, syndicates and or corporates to illicitly manipulate the markets or the exchange rate, then it would have been more prudent to gather such evidence and prosecute those entities rather than suspending the market as that set a bad precedent.

The association said migrating to a forex-denominated exchange was unlikely to serve any purpose for Old Mutual Limited shareholders.

Authorities want the three fungible counters to be transformed to the proposed Victoria Falls Stock Exchange where shares would be sold in foreign currency.

Old Mutual Limited shares are largely used as a currency hedge or a store of value by Zimbabwean investors. This status will not change post migration to a foreign currency-based bourse.

IPAZ said if the Old Mutual Limited shares were traded exclusively in the greenback as envisaged, this may entail that local investors would rush to dispose the shares in favour of holding hard cash, which could be detrimental to the country in the long run as the share would end up more in the hands of foreigners than locals.

The association said alternative solutions should be found instead of addressing the underlying causes of the currency weaknesses.

"A look at the history of the ZSE and the role any stock exchange plays in the growth of an economy and empowerment of entrepreneurs and ordinary investors, suggests that such a move would have more long-term negative effects on the country than what the authorities seek to correct," IPAZ said.

In 2008 the central bank halted trading on the stock exchange in a desperate bid to end suspected fraudulent trading, which drove out buyers from the bourse.

The ZSE reopened three months later after Zimbabwe moved to the multicurrency system.



Source - the standard

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