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OVER US$900 million in shareholder value went up in smoke from January to Wednesday last week as liquidity constraints and uncertainty caused by the controversial empowerment regulations wiped away the value of shares on the Zimbabwe Stock Exchange (ZSE).
The stock exchange is an indicator of the performance of an economy.
According to figures from ZSE, market capitalisation — measured by multiplying the total number of shares of stock listed entities and the prices — went down to US$3,034 billion on Wednesday from a high of US$3,972 billion on January 29.
This means that the value of shares had decreased by US$938 million, almost the size of last year’s national budget.
The 2009 budget was US$1 billion.
Where sales per day used to hit US$2 million, the figure had gone down to US$400 000 as of Wednesday.
On a typical day, locals are net sellers because they want to raise money, a fund manager said.
The shortage of cash on the market has had a bearing on the low activity on the ZSE but the announcement of the empowerment regulations that compel foreign companies to dispose of 51% of their shares to locals within five years, rattled the stock market driving away foreign investors.
Emmanuel Munyukwi, the ZSE CEO told Standardbusiness the trend on ZSE was worrying and there was no indication of when the free-fall would end.
“The foreigners were providing the liquidity,” Munyukwi said.
“They reduced their activity because of the uncertainty caused by the indigenisation regulations.
“They are monitoring the position but have not completely deserted the market because we still see them once in a while”.
Government in March introduced the indigenisation regulations that sought to operationalise the Indigenisation and Economic Empowerment Act passed in 2007.
The regulations that have scared investors have since been revised but analysts say they are still unacceptable to foreign investors.
Foreign traders used to drive ZSE contributing between 40% and 50% of market turnover per month.
Their monthly contribution has been halved to 20%.
The declining activity on ZSE will be another blow for the 20 stockbrokers who derive their incomes from increased volume of trade on the bourse.
Brokers are still smarting from halving of commission on the trading of shares to 1%, a development likely to affect their incomes.
In his mid-term Fiscal Review, Finance minister Tendai Biti attributed the poor performance to a flight on investors pulling out their investments reflecting depressed investor sentiment over perceived financial risks, especially following gazetting of the Indigenisation Regulations on March 1.
Analysts say with the risks affecting companies listed on ZSE, traders were choosing to stay closer to their cash.
“During times of increased uncertainty, traders, who are assumed by the popular capital asset pricing model to be generally risk-averse in nature, prefer to stay near cash securities,” Kingdom Stockbrokers said in its weekly report.
“As a result, most funds that could have been invested on the ZSE are being directed towards the local money market, which offers less risky asset classes.”
Analysts say most foreign traders, particularly those whose appetite for risk is generally on the lower end have shunned the ZSE for other less risky bourses.
Volumes of trade from foreign investors has therefore remained relatively subdued than expected, a development that has also led to depressed activity on the ZSE.
This comes after government slashed transaction costs on the ZSE to 4, 3% from 7, 5% effective January in line with regional trends.
The slash in costs was supposed to lure foreign investors onto the bourse.
A look at the financial results released recently shows that most companies were struggling to stay afloat and were in need of huge capital injections.
“The future value of assets is continuously going down,” a fund manager said on Thursday.
Other than foreign traders, pension funds invest on the stock market and the decline in value means that their assets are also declining.
Added to that, most funds are not receiving much because companies are not contributing more funds in terms of pension contributions because of low salaries obtaining in the economy.
Their net investment is negative and they are selling to cover operating expenses.
Analysts say the loss of value would continue unless there is a major cash injection into the economy.
Biti announced on Wednesday that $1 billion would be injected into the economy and analysts say such an injection coupled with the diamond sales could be the tonic needed to improve the liquidity to oil the stock market.
BY NDAMU SANDU
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