Dual-listed stocks on back foot

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ACTIVITY in dual-listed equities on the Zimbabwe Stock Exchange (ZSE) has declined significantly since the Reserve Bank of Zimbabwe (RBZ) placed a three-month vesting period on the trading of such counters, The Financial Gazette realised.
The central bank last month issued an order limiting the trade of dual-listed stocks to three months as a way of reducing speculation on the local bourse.
According to the ZSE, stocks affected by the latest directive include those for Old Mutual, PPC, SeedCo International, ART Corporation, Cafca, Meikles and NMBZ Holdings.
Enock Rukarwa, FBC Securities’ research and investment analyst, said trading activities on fungible stocks has plummeted by over 66 percent in the last few weeks.

“In all, these counters used to have an average daily traded value of more than $3 million but after June 24, it plummeted to less than $1 million.The vesting period seems to have reduced liquidity on these companies,” he said.
Rukarwa noted that foreign activity on the market, which he said had dominated trade in dually-listed stocks, has also decreased.
“Foreigners were disposing non-dually-listed stocks in order to fund purchases in fungible stocks, the directive seems to have caused a contagion effect on the whole market.
“Going forward we forecast local demand on dually-listed companies to decrease further because it’s no longer rational to lock funds for 90 days taking cognisant of imminent liquidity issues and uncertain economic conditions,” Rukarwa added.
The directive from the RBZ came after government had blamed proxy rates ― derived from a comparison of the price of fungible stocks on the ZSE against other foreign markets ― for the dramatic movements in currency exchange rates on the parallel market, which have been widely accepted as the driver of high inflation in the southern African country.
Following the directive, which was given on June 24, Lloyd Mlotshwa, director and head of sales at IH Group, had said that the new rule shows that there is a clear drive by government to remove secondary reference rates that is the parallel market.
“This latest directive will effectively expose investors trading in dual-listed counters to equity market risk and exchange rate risk over the 90-day vesting period ― with the intention being to slow down activity in those names and more importantly remove them as a secondary reference rate,” he said.
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