Readers may have seen some alarming news articles on various media quoting Zanu PF’s acting spokesman Patrick Chinamasa that Old Mutual Limited “will be ejected from the financial system”.
The news flow demonstrates that Zimbabwe still has real issues to solve given that it has attracted confusion since the statement lacks clarity on what an ejection from a financial system really means.
Meanwhile, Old Mutual has issued a statement indicating to its stakeholders that it is working to seek clarity over the reports.
There has indeed been a wave of negative news coming out of Zimbabwe including the suspension of mobile money platforms and trading on the Zimbabwe Stock Exchange (ZSE). We are concerned about the “headline effect” and economic costs that come with negative news.
Headline effect refers to the impact that negative news in the press has on a corporation or economy.
The media and newspaper articles have an influence on investor decisions. It appears that Old Mutual is being accused of fuelling the rise in the black-market foreign exchange rates due to the Old Mutual Implied Rate (OMIR).
Something that we have pointed out as illogical given that implied rates can be calculated on almost any standard item of good that is priced across different markets.
An investor’s reaction to a headline can be very dramatic and out of proportion when compared with the reaction to good news in the headlines.
While this market reaction is, to some extent, natural and expected, the headline effect can speed up and worsen the severity of the market reaction by bringing bad news to the forefront of the investor’s mind. Headline effects can also make a stock price wobble even if the news in those headlines does not hold water. For example, one of the most frequently debated aspects of Donald Trump’s successful run to the White House, and subsequent administration, has been his personal Twitter use.
Trump has been a user since 2009, amassing more than 20 million followers and posting more than 30 000 tweets.
The impact of Trump’s tweets on the entire US equities market is an ongoing topic for discussion throughout the financial community and no company is safe from the short-term pricing volatility created by a Trump tweet. The fact is that statements issued by Trump via Twitter can impact valuations.
In the case of Zimbabwe, the negative economic and political news headlines have not helped in terms of improving investor sentiment and positioning the country as a stable investment destination.
The US Africa Business Centre has introduced the Investor Confidence Indicator for Africa (ICIFA) which is a holistic tool for measuring and assessing the performance of African nations in setting the conditions for civic wellbeing and investor confidence.
Zimbabwe has a score of 39.53/100 and ranks poorly when compared to Southern African counterparts like Botswana (64.87), South Africa (62.05), Namibia (60.35), Zambia (51.12), Malawi (48.37) and Mozambique (44.44).
The ICIFA assigns an overall score to each nation based on their performance in 12 international evaluations on essentialities for promoting security, development, and good governance rooted in the rule of law — the cornerstones of a strong society and vibrant business environment.
Based on that aggregate score, the indicator assigns colour codes reflecting each country’s position relative to one another — dark green reflects those countries that place in the top quartile of overall performers in Africa; light green those in the second quartile; yellow those in the third quartile; and red those in the fourth quartile.
A look at the economic history shows that investors in Zimbabwe have been exposed to various forms of negative economic and political shockwaves.
In addition, some announcements made hold many tones that are difficult for the investors to comprehend fully. Of course, political decisions have also contributed to the insta
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