WHILE global markets are selling their shares because of the financial crisis, a buying fever has gripped the Zimbabwe Stock Exchange following the “riot act” read by the Reserve Bank governor Gideon Gono lastÂ Thursday, Imara Edwards financial services said.
The stock market fell sharply this week following monetary policy measures introduced by the Reserve Bank meant to curb fraudulent speculative behaviour that had gripped the market.
Gono said it was because investors were abusing the two trading session structure of the Zimbabwe Stock Exchange to “buy and sell” shares that were not backed by actual credit balances in their bank accounts.
For instance, an investor would instruct a broker to buy shares of certain listed companies in the morning call-over and order the sell of part of those shares during the afternoon call-over, thereby making huge profits as share prices would have increased by a massive percentage.
As there would be no money in the investor’s account, part of the profit would then be used to pay for the shares that would have been “bought”.
Imara said the perverse market behaviour was explained by hyperinflation and the increasing ‘dollarisation’ of the Zimbabwean economy, with the exception of its domestic financial markets and the public sector.
John Legat, head of Imara Asset Management, who is based in Harare said: “In local currency terms, the Zimbabwe Stock Exchange (ZSE) has been going ballistic in line with hyperinflation and money creation. The ZSE was up 56 436% in October.”
Reserve Bank of Zimbabwe governor Gideon Gono last week said: “You only need to look at the madness that has been going on at the stock exchange and the fictitious, obnoxious and artificial wealth that was being created in an environment where fundamentals have actually not improved. My warning to those who are playing on the stock exchange is that if you play with fire you know what happens.”
Imara manages and markets a range of investment funds with equity holdings in various African jurisdictions, including Zimbabwe.
“Daily moves of over 200% on the ZSE index are now normal. On some days, individual stocks have risen by 100 000%.
“Fundamentals on individual stocks have largely been ignored as individuals and institutions are investing in the stock market regardless of risk as it is one of the few places left where Zimbabwe dollars are accepted as currency,” said Legat.
“Rather than have Zimbabwe cash balances in a bank wasting away, investors are instructing their stock-brokers to buy anything liquid,” said Imara.
Earlier this month, the government slammed insurance companies and pension funds, which make up more than 80% of ZSE’s investors, for preferring to invest in the stock exchange rather than the government.
Insurance experts said to punish them, the Reserve Bank introduced a statutory requirement that from the end of this month, they would have to invest between 30% and 35% of their assets in prescribed government assets. Failure to comply would result in “very serious remedial measures”.
There are suggestions that ZSE should become dollar-denominated, along with many other parts of this rapidly dollarising economy.
With the introduction of foreign currency shops and fuel stations, the move towards doing business in hard currency is spreading like wildfire.
Employees are starting to ask for salaries to be paid in hard currency as they are unable to easily access Zimbabwe dollars from the banking system and most goods are available only in foreign currency shops and on the black market, both of which require real money.
While the partial dollarisation has provided some breathing space for Zimbabweans with access to foreign currency it has created dual pricing on every good and service.
Prices in US dollars are actually higher than those in local currency.
Meanwhile Old Mutual plc, has delayed its dividend payment to Zimbabwe shareholders because ofÂ the problems in country’s banking system.
The insurer noted the failure of the banking system to handle the number of zeros in processing the transactions which amounts to $453 trillion per share for its interim period which is due today.
“The banking system in general is having difficulties with the size of the numbers involved,” Matthew Gregorowski, a spokesman for London-based Old Mutual, said in a statement. “It was a temporary processing issue” which would be solved soon, he added.
According to Kingdom Stock Brokers (KSB) trade on the money market is apparently stagnant because of the recently administered cheque limits and the persistent Real Time Gross Settlement system challenges that have affected the entire settlement system.
NMB Bank Ltd that was suspended from the clearing house on
Saturday was readmitted on Tuesday.Â This effectively means the bank was out of the clearing house for one day.
Asked for comment on the circumstances surrounding its suspension, the bank said: “It was common knowledge that when one of the commercial banks was taken out of the clearing house on the morning of 17 November 2008, we became a victim of the contagion effect.Â The suspended bank owed us $195 quintillion in clearing settlement.Â The suspension of the one bank affected two other banks that failed to settle with us an amount of $121 quintillion.Â One of the said banks has since paid us $103 quintillion.”
NMB was in surplus on Tuesday when it was readmitted to the clearing house.
ByÂ Paul Nyakazeya