Govt interference on ZSE queried

STOCK exchange stakeholders spoke for the first time this week since the Zimbabwe Stock Exchange (ZSE) was shut down in June, questioning the powers behind its shutdown and warning government not to repeat the mistake again.

In a presentation made during a Securities and Exchange Commission of Zimbabwe (SecZim) stakeholder consultative meeting on Monday, a group of organisations categorised as clients of SecZim, the capital markets regulator, queried the way authorities cracked down on the ZSE.

They said government should have investigated first, before shutting down the bourse.

Clients of SecZim include asset management companies, stock broking firms, custodians, the ZSE, Chengetedzai Depository Company and Finsec, among others.

Authorities suspended trading on the ZSE on June 26, claiming that speculative trading and the use of dual-traded stocks as an indicator of future exchange rates were destroying the Zimbabwean dollar.

The ZSE's benchmark industrial index had rocketed seven times when it was shut down, after investors stampeded to the stock market to buy shares and hedge against rampaging inflation, which was measured at over 750% in June.

In the presentation, SecZim clients queried the stock markets regulator's capacity to protect them and called the closure a complete "disorder".

"Market closure led to lack of confidence. They closed (first) then investigated later," they said.

"It was better to have investigated first. Closing the market must never happen as it sends a negative message to foreign markets. There were a lot of questions about where that power (to close the ZSE) was derived because it is only SecZim that has the power. The clients (of SecZim) don't expect that to happen again. Make sure that the markets are not closed in a disorderly manner."

Trading on the ZSE resumed on August 3 after government directed it to delist three counters with fungible stocks that had unsettled authorities.

These are Seed Co International, which has since listed on the new Victoria Falls Stock Exchange, PPC and Old Mutual.

But the ZSE lost ZW$240 billion (about US$3 million) during the five-week hiatus, prejudicing stock market investors including pension funds and insurance companies of income.

Businessdigest understands that some of these organisations have had to sell off assets to pay salaries.

These organisations would liquidate stocks invested in counters like Old Mutual and raise funding for their expenses.

It is feared pension funds may fail to pay future benefits because the closure created a black hole on their books.

"Pension funds may fail to raise funds for benefit payments due to these sudden policy changes," a presentation made by life and pension funds, said referring to the closure of the ZSE. "Further valuation of pension fund assets (for example, property/equities) becomes difficult in an environment that is ever changing (more than two decades of currency turbulence resulting in erosion of pensions and life policies). (We need) consistency over long periods to allow for long term planning.

"Policy announcements should be consistent to factor in impact on the pension fund industry. Long suspension of Old Mutual and PPC from trading (caused) liquidity challenges in the life and pension industry given, for example, 35 000 clients in Old Mutual."

When authorities cracked down on the ZSE during the bull run, Bloomberg reported that security sector leaders had sidelined economic chiefs and pressed ahead with the closure.

It said the closure that sought to stabilise the Zimbabwean dollar had been ordered by the Joint Operations Command (JOC).

The JOC includes members of the military, the Zimbabwe Republic Police and the intelligence service.