ZSE foreign participation wanes

FOREIGN participation on the Zimbabwe Stock Exchange (ZSE) declined by 45 percent in November as the country’s economic troubles continue to keep investors at bay.
Latest data provided by the ZSE shows that foreign purchases dropped to $19 million in November, from $35 million in October.
Foreign sells declined from $30 million to $18 million.
Foreign activity on the local bourse has eased by more than 65 percentage points since February, when government abandoned the 1:1 parity between the domestic currency and the greenback.
Enock Rukarwa, FBC Securities’ research and investment analyst said inflation had become a major risk.
“Inflation is now one of the major reasons why foreign participation has declined on the ZSE. It is an indicator of macroeconomic instability, uncertainty and investment risk.
“Low inflation and appropriate pricing of capital and labour create an enabling foreign investment climate.”
“Institutional factors like corruption, weak governance and perceived political risk inhibit foreign investment attraction.
“Because foreign investment requires long-term commitment involving huge sunk costs and capital outlay, issues of uncertainty, country risk, policy inconsistency and credibility are critical.
“More so, policy on investment profits, government regulation, restrictions on equity holdings by foreigners also have a huge bearing on foreign participation,” said Rukarwa.
As part of policy reforms that government has implemented over the past year, which many say have dampened confidence and driven the economy deeper into the doldrums, the central bank imposed a three-month vesting period on dual-listed stocks.
And this, experts say, has worsened the situation.
“In all, these (fungible) 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.
Analysts at Equity Axis are of the view that an improvement of the interbank market would ease the fluidity of funds in and out of Zimbabwe.
“Several challenges have however, hindered the swift movement of funds on the interbank and consequently the movement of portfolio disposals by foreigners.”
Recently, Ranga Makwata, Fincent Capital’s executive director, said the market was now looking less attractive to the foreign investor because of recent developments on currencies, exchange controls and worsening economic conditions.
“The introduction of the mono-currency regime brought about currency risk, which was not there in the multi-currency system.
“Investors now have to worry about exchange rate of local currency to US dollar in addition to the returns of their investments in local terms,” he said.
newsdesk@fingaz.co.zw