IN A year which many would like to quickly forget, the Zimbabwe Stock Exchange (ZSE) had what could possibly go down as its most eventful period ever.
ZSE chief executive, Justin Bgoni
The local bourse swung to record highs, witnessed a flurry of delistings and went for six straight weeks without trading after it was suspended by government following accusations of fuelling inflation as well as the parallel market.
This was on top of Covid-19 disruptions, which saw many companies delay publication of their financials. In March, the government also suspended the fungibility of Old Mutual (OM), PPC and SeedCo International (SeedCo) shares.
This was based on the view that the Old Mutual Implied Rate (OMIR) — a proxy metric derived from comparing the Anglo-South African firm’s London, Johannesburg and Zimbabwean shares — was being used as a benchmark to determine parallel market rates. Analysts say this notion is misplaced “given that foreign exchange, like any other market, follows the forces of supply and demand”.
The suspension came after a rally that coincided with the liberalisation of the foreign exchange market in February, which saw the All Share Index (ASI) gaining 34 percent in a week.
At the end of March, authorities fixed the foreign exchange rate to “cushion the economy from shocks associated with the Covid-19 pandemic”. This somewhat arrested movements in the parallel market and by extension, the ZSE, but by mid-May the impact of sustained foreign currency scarcity and persistent inflationary pressures had kicked in.
The ruling Zanu PF party insisted that the OMIR was fuelling inflation, which at the time had reached 700 percent. Trade resumed on August 3. OM, PPC and SeedCo, however remain suspended, with authorities suggesting that they move to the Victoria Falls Stock Exchange (VFEX), a US$-denominated market. In August, the market lost 30 percent, attributed to foreign sell-offs, with the five-week suspension accused of destroying confidence.
Foreign sell-offs persisted through September, but sustained inflationary pressures pushed the market up 12 percent on aggregate. During the third quarter, both the official and parallel foreign exchange rates stabilised as the impact of the central bank’s monetary targeting efforts, and the limitations placed on mobile money transactions — the primary medium in the grey market — set in.
This saw the stock market gradually declining, losing about 15 percent during the six weeks to the end of October. In November the market gained about eight percent, attributed to the stabilisation of the domestic currency.
“A stabilising currency and improved fundamentals such as improving national income has also helped restore confidence in the economy,” Equity Axis, a local research firm, said in a note.
Foreign sell-offs persisted through September, but sustained inflationary pressures pushed the market up 12 percent on aggregate.
And this month, the ASI reached a record 2 000 points after the market put on more than 25 percent. Apart from currency stability, analysts say the gains come “on the backdrop of exchange rate pressure and mounting demand for foreign currency ahead of the festive season”.
IH Securities says the recovery in consumer demand reported by firms during the third quarter has improved the attractiveness of stocks on the local bourse. “We believe there is an opportunity to cherry-pick stocks trading at undemanding multiples with dominant shares in consumer spaces in which volumes are recovering,” the equities firm said.
Analysts have also said the market’s real-value decline since 2017 has not been fully recovered despite the high returns seen over the past two years. The market has gained more than 770 percent this year, but its capitalisation of about US$3 billion still remains below an average of US$4,1 billion that was achieved when the economy recorded consistent growth between 2014 to 2017.
The exchange has also seen a number of structured acquisitions, most of which have been linked to delistings. Zimre Holdings (Zimre) bought out other shareholders in Zimre Property Investments (ZPI) “to strengthen its balance sheet and underwriting capacity”. Zimre also acquired the entire shareholding of Fidelity Life Assurance Company (Fidelity).
ZPI has since delisted, and Fidelity will follow suit. African Sun took over Dawn Properties, which is also set to delist soon. SeedCo is in the process of merging with its offshoot, SeedCo International, now trading on the VFEX since November, in a move that will see it delisting from ZSE.
Getbucks Microfinance Bank says it is considering a restructure that may result in it delisting from the exchange. Falcon Gold Zimbabwe also delisted, saying the local bourse had failed to provide it an avenue for funding, and that additional costs of being listed, “with no compensation benefits”, could no longer be borne, especially amid the company’s ongoing viability problems.
The Zimbabwe Asset Management Corporation is also planning to dispose of its 57,4 percent stake in Starafrica Corporation. OM and PPC remain suspended and will likely delist. The year also saw considerable activity on the innovation front. In September, the exchange introduced a direct access market service, to allow fund managers and institutional investors direct access to the market without manual intervention by brokers.
And in December, the Old Mutual Zimbabwe Stock Exchange Top 10 Index ETF was launched. It will start trading on the local bourse in January. The Reserve Bank of Zimbabwe and Treasury also announced that they plan to list securities on the exchange.
The outlook of the exchange, however, is uncertain. Earlier this year ZSE chief executive, Justin Bgoni, said the bourse risked “dying a natural death” after going through half a decade without securing an initial public offering and “registering very little capital raising” transactions.
And even though the VFEX has started slow, with only one listing so far, analysts say the prospect of raising capital in US$ will attract companies to the new exchange.
newsdesk@fingaz.co.zw