By Thomas Mupfuka
The Zimbabwe Stock Exchange (ZSE) weakened in the month of March after shedding 19,36% to close the month with a market capitalisation of $15,98 billion from $19,82 billion in February, as the market self-corrects and adjusts to the recent monetary policy pronouncements.
Turnover declined 75,87% to $70,81 million from $295,84 million traded in February, with average daily trades of $3,37 million realised during March.
The most significant contributors to the total value traded were heavyweights Cassava, Delta and Old Mutual, contributing 22,90%, 22,20% and 20,23% respectively.
Equities analyst Ranga Makwata said the softening of the market following fiscal and monetary shifts pronounced in the monetary policy statement in February, saw business operations shrink as currency shortages worsened and aggregate demand fell.
“The market has been looking overbought for some time now after going up by 46% in 2018 and a correction was inevitable,” he said.
“The rally in 2018 was not driven by any improving fundamentals in operations of listed companies.
“Rather, it was a result of rising liquidity in the economy, intensifying inflationary pressures and depreciation of the real-time gross settlement (RTGS) dollar against US$ forcing cash-rich entities and individuals to invest on the stock market as a value preservation strategy.
“If you then add the recent formalisation of the RTGS dollar as an official functional currency, the sentiment changes negatively as mostly foreign investors exit.
“The RTGS dollar means the country now has foreign exchange risk, which makes investment returns less attractive compared to the time when the US$ was the functional currency and the 1:1 relationship between RTGS and real USD existed.”
Reserve Bank of Zimbabwe governor John Mungudya last month released an exchange control circular indicating that commercial banks should prioritise 15% of all foreign currency payments towards the repatriation of dividends by portfolio investors on the ZSE.
However, Makwata said the portion was insignificant given the payments backlog.
“The allocation of 15% of foreign currency to portfolio disinvestment is inconsequential because the figures are way too small given the huge backlog of investors wanting to exit,” he said.
Research firm IH Securities was of the view that the initiative was still shrouded in secrecy with no indication as to who had received what and how much had been paid to investors, therefore breaking investor confidence.
“There has been no transparency as to how much has been allocated to portfolio investors.
“However, we believe that these recent policy changes are a constructive step forward to beginning to avail liquidity to trapped investors if executed in an efficient and effective manner,” the research firm said in its report.
Renowned economist John Robertson said failure to implement the proposed policies continued to stifle investor trust particularly on the equities market.
“Slow progress on achieving the promised reforms has undermined confidence. If we could see more signs of determination to actually carry out changes, we might begin to be taken seriously again,” said Robertson.
Authorities expect the stock market to show signs of recovery in the coming months as the government has indicated that it is in the process of formulating the Zimbabwe Investments Development Bill, which is aimed at safeguarding foreign investments and making it easier for foreigners to repatriate their profits.