ZSE faces currency risk storm

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THE Zimbabwe Stock Exchange (ZSE)’s change of trading currency to RTGS dollars will introduce currency risk into the market, analysts have warned.
Currency risk, commonly referred to as exchange-rate risk, arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses.
Ranganayi Makwata, a Harare-based equities analyst, said the central bank’s decision to redenominate and devalue bond notes and bank balances may see foreign investors fleeing the local bourse due to increased risks.
“The monetary policy statement confirms that the ZSE now carries some exchange rate risk in addition to whatever country risk was already present,” he told The Financial Gazette last week.
“It therefore changes the whole narrative about Zimbabwe being dollarised and presenting no risks to investors seeking to repatriate their investment proceeds. Now investors have to consider the exchange risk implications to whatever investment returns they may expect,” he said.
The Reserve Bank of Zimbabwe last month ditched pegging its currency at 1:1 with the United States dollar to pave the way for the market to determine the local currency’s value.
Makwata noted that it would be “a disappointment to investors who invested real United States dollars to be told that their investments are now in a different and weaker currency. It kills investor confidence,” he said.
Over the years, foreign investors have had troubles expatriating dividends and other funds from the country which is currently facing serious shortages of foreign currency.
Makwata said the denomination however did not change much “because for a long time now investors had already accepted that stocks were trading in a different currency to the United States dollar which was being reported.”
“That the rate of 1:1 had ceased to exist was quite evident on the market as outbound investment proceeds piled up with banks failing to process payments,” he said.
Batanai Matsika, the head of research at Morgan & Co, concurred with Makwata, saying the denomination would not have any practical implications on the way investors have been valuing stocks. newsdesk@fingaz.co.zw