Bad Year for ZSE as Blue Chip Counters Delist
The tumble into bear market, particularly in the heavy counters or blue chip counters, severely reduced investors’ net worth, and made them nervous.
Bad year for stocks on the Zimbabwe Stock Exchange, ZSE which saw blue chip counters either delisting or recording losses.
It was a bad ride for investors who saw their investments worth more than ZWL$2 trillion wiped out as the value of stocks tumbled to ZWL$1.691 trillion yesterday from ZWL$3.6 trillion in April. Prior to that the bulls’ sentiment had driven equities from ZWL$1.3 trillion in January this year. The tumble into bear market, particularly in the heavy counters or blue chip counters, severely reduced investors’ net worth, and made them nervous.
A broker who requested anonymity said:
“This has been the worst year for the past 10 years.”
The fall, which has been described as ‘nerve wracking’, has been attributed to a cocktail of fiscal and monetary policy interventions meant to deal with speculation and arbitrage as well as the plunging Zimbabwe dollar, which until recently had driven inflation and dollar depreciation.
Government believed the local bourse had been subject to manipulation through speculative trading that drove inflation upwards. There have been serious malpractices at the Zimbabwe Stock Exchange (ZSE) believed to be part of activities that fuelled parallel market activities.
Apparently, the deficiencies in the ZSE system allowed clients to sell shares and transfer proceeds to third parties for speculative trading in forex. Consequently, the government, through Statutory Instrument (SI) 103A, gazetted new regulations to operationalise its directive for tighter conditions on trading of securities on ZSE.
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The administration blamed the brokers, whom it accused of initiating part of the illegal and speculative activities that fuelled depreciation of the Zimbabwe dollar through the transfer of funds between brokers’ sub accounts. These have since been outlawed by the government, clipping the wings of rogue brokers.
As a result, the government also doubled capital gains tax on shares for 270 days or less to 40% from 20%, a move meant to promote long-term investment on the ZSE. The 20% tax level was seen as not deterrent enough to discourage speculative trading in shares.
It is believed that the speculators used the price bubble on the ZSE to make huge profits as the bulls kept charging at the local bourse, resulting in the market capitalisation rocketing to ZWL$3.5 trillion in April this year, from ZWL$1.3 trillion in January this year. The bullish sentiment also resulted in a brutal attack on the Zimbabwe dollar in the parallel market.
However, since the gazetting of SI 103A, which curbed speculative trading on the stock market, the ZSE has been experiencing a bearish sentiment, with the market capitalization declining to ZWL$1.691 trillion this week.
Consequently, the measures which were put forward in May this year resulted in a liquidity squeeze which also depressed trading activity on the local market with investors continuously losing money. The turmoil that engulfed the lacklustre ZSE was also sparked by renewed worries about a gloomy economic outlook.
The crisis has now left investors poorer as the ZSE, a once go-to-destination for companies seeking cheap funding, is now fragile with equity exposure, which has been a preferred asset class. This has left the ZSE clearly in an underweight position. The situation has left investors now poorer than they were seven months ago.
An investment manager with a local commercial bank, who also requested anonymity said:
“Stock has gone from bad to worse in this second half of the year, hurting almost every investor on the ZSE.”
It’s bad news for investors seeking to park their money on the ZSE long-term. The severe downturn saw several counters, including Simbisa Brands, Bindura Nickel Corporation and Padenga Holdings exiting the ZSE, migrating to the United States dollars denominated Victoria Falls Stock Exchange (VFEX)
National Foods has since exited ZSE and is listing on the VFEX tomorrow. Several others including Axia Corporation and Innscor Africa, have since indicated their intention to exit ZSE and migrate to VFEX as the bears continue to wipe out trillions of dollars of equity values on the now fragile ZSE. Apparently, investors, especially foreigners, have since dumped the ZSE.
A significant number of Zimbabwe’s most valued companies listed on the ZSE lost billions in market value in the period under review. What is clear for those that have remained at the ZSE, they, however, have limited choice as other investment classes such as the money market have low yields and remain unattractive and susceptible to inflation erosion.
This comes despite the central bank recently hiking the minimum deposit rates to 40% and 80% for savings and time deposits respectively and increasing the bank policy rate to 200%. FBC Securities said the upward review is likely to fall short in curbing speculative borrowing and encouraging deposits long-term as inflation remains elevated, eroding the value of the local currency.
Multiple analysts said while the ZSE performance has been subdued due to policy interventions and liquidity constraints, the underlying fundamentals previously driving investment on the stock exchange remain in place. Investment analysts say investors should not expect the bleeding to stop in the short-to medium term, a situation which is raising alarm bells.
The wipeout is partly tied to the recent government interventions, liquidity constraints, and high inflation among other problems. The heavy losses were largely in blue chip counters also known as heavies or most valued companies listed on the ZSE, dragging the local bourse into a crisis.
The Reserve Bank of Zimbabwe also introduced gold coins during the period under review, resulting in investors turning their back on the ZSE. The gold coins have provided investors an alternative asset class and assisted the government in mopping up excess liquidity in the market.
According to official data obtained from the Reserve Bank of Zimbabwe, a total of 9 516 gold coins valued at ZWL$9 billion were sold as at September 23, 2022 with 35% sold to individuals and 65% to corporates.
