THE Zimbabwe Stock Exchange (ZSE) has been given the greenlight to trade in foreign currency to ensure that it reflects the true economic picture of the country and value of counters.
Presenting the 2009 national Budget yesterday, Acting Finance minister Patrick Chinamasa said the bourse remained a critical pivot for socio-economic development through its intermediary role between surplus economic agents and those intending to raise capital.
“Consultations are on-going over measures to ensure that the Zimbabwe Stock Exchange also serves as an effective vehicle for foreign exchange generation,” Chinamasa said. “In this regard, stock market trading in both local and foreign currency will be allowed.”
While the economy was crumbling, the ZSE was earning returns above inflation with most counters gaining by over 100 000% daily.
This jump in share prices was in excess of increases in consumer prices.
The stock market had become a prime beneficiary of monetary expansion and the “burning” of US dollars to create artificial wealth.
Chinamasa also proposed a new tax targeting the large amounts that were deposited into individual and corporate accounts as a result of “burning”. He said the funds would be taxed at the highest marginal tax rate of 40% with effect from February 1.
Sextillions of dollars were made last year as investors either leveraged the embarrassingly low interest rates or used “burned” money to generate huge returns.
As a result share prices were rising while the economy continued to collapse, giving a false impression to investors who used the stock exchange as a barometer for the country’s economic performance.
Chinamasa said the stock market could spin out of control, particularly in cases where there were no strict oversight rules.
“In order to ensure that the Zimbabwe Stock Exchange fully plays its developmental role, the Ministry of Finance, through the Securities Commission, is putting in place a rigorous code of ethics as well as stringent licensing and risk management systems for stock brokers,” Chinamasa said.
The stock market has not been trading since November 17 last year as investigations by the Reserve Bank and the Securities Commission into alleged insider trading continue following practices by some banks that were using fraudulent cheques to artificially inflate share prices.
The Securities Commission ordered stockbrokers to submit audited financial reports of their net worth by the end of December 2008.
The commission warned broking firms they would be closed if they failed to meet the deadline.
Trades on the bourse are now supposed to be backed by a letter of confirmation from bank chief executive officers.
The stock market committee has also observed with concern that there were some relatively large institutions with capacity and strategic macroeconomic information, which was used to inflate, depress or cause fluctuations in the prices of securities in breach of the Securities Act.
“This is considered a very serious offence and will be subjected to investigation in order to determine complicity under the Securities Act,” the stock exchange said.
The ZSE committee said it had not yet ruled on the issue of defaulting members that were revealed by the Reserve Bank last year.
“It (activities on the stock market) was simultaneously escalated to the public domain as the report was being brought to the attention of the committee,” the ZSE said early this year.
The stock market was providing investors with an alternative lucrative investment option given the depressed performance of other markets like the money market or property market which require a lot of money.
A number of investors preferred to take refuge on the stock market because returns have been tracking inflation.
BY PAUL NYAKAZEYA