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RTGS problems catch up with stock market

Paul Nyakazeya

THE industrial index shed 18% this week while the mining index retreated 15% due to a liquidity shortage on the market and serious problems on the Real Ti

me Gross Settlement (RTGS) system.

On Tuesday the industrial index dropped by 3% while the mining index lost 4,09%.

On Wednesday the stock market experienced the biggest retreat since June last year with the industrial index shedding 16% to 1 611 977 487, 82 points while the mining index slumped by 9% to 1 488 786 694,20 points.

Pioneer is the only counter that traded in the positive increasing by 100% to $100 000 from $50 000.

Yesterday the main industrial index made a minor rebound of 0,9% to 1 627 697 581,68 points but the mining index shed 2,4% to 1 452 679 482,98 points.

Only Ariston Holdings, Delta, Econet Wireless, Innscor Africa, Natfoods, Redstar, RTG, ZPI and Lafarge recorded gains.

Stockbrokers said the rate at which the stock market has crumbled this week was reminiscent of June 25 when government reduced prices of goods and services by 50% which pushed the shares into red for over a month.

The industrial index has declined by 65% since January 9 when the market hit an all time high of 2 711 247 112, 09 points.

The mining index has also crushed 48% from an all time high of 2 719 812 434,54 points recorded on January 4.

Zimbabwe Allied Banking Group economist, David Mupamhadzi, said the stock market was currently jittery and struggling to find direction after being adversely affected by the shortage of liquidity in the market.

“The on-going challenges that RTGS system is facing has also dented the recovery of the market, as players are failing to push volumes,” said Mupamhadzi.

Mupamhadzi said the crash of the market should offer good buying opportunities for new investors as most counters were heavily discounted.

Genesis Bank group economists, Brains Muchemwa, said the bear market was largely a function of the liquidity crunch in the market.

“Now minimum lending rates of banks are around 1 000% compounded monthly which would give an effective annualised cost of 148 000%. This is excessively very high cost of capital relative to inflation, and many companies that had borrowed and investing on the stock market have been selling their portfolios to extinguish their overdrafts at banks,” Muchemwa said.

“On the other hand, the panic syndrome has gripped individuals and many stockbrokers are inundated with sell orders, further pushing the market over the cliff,” he said.

Muchemwa said the market had no immediate capacity to absorb these huge chunks of shares hence the prices were plummeting.

“The market will only recover when additional liquidity would have accumulated enough to create capacity to absorb huge sell orders,” Muchemwa said.

ZB Bank group economist Best Doroh said the stock market had been coming down because some institutional investors and other big players on the market have been trying to off-load their shares in an effort to get liquidity back on their positions.

“The huge shortages on the money market in the past two weeks has also resulted in money market rates firming up, and this has had a negative impact on equities,” said Doroh.

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