Zimbabwe Stock Exchange (ZSE) newly appointed chief executive Justin Bgoni says the market will introduce exchange- traded funds (ETF) in the next three months as the local bourse is still lagging behind in terms of turnover and products it offers compared to regional counterparts.
An ETF is a tradable basket of securities such as stocks, commodities, or bonds.
Bgoni told Standardbusiness that the ZSE had already completed all the draft specialist securities requirements, which will set minimum requirements for issuers and the criteria for the instruments.
“I can confirm that in the next three months we will be introducing new product exchange traded funds, the process is almost complete, after all the draft requirements, which set minimum requirements for issuers that ensure a sound price formation in the ETFs and consultations with relevant key stakeholders,”
“All we are trying to achieve is to offer more products to the investing public.”
Bgoni added that ZSE had three challenges at the moment.
The first one which is limited opportunities for one to invest in, secondly, its reputation, and lastly, lack of awareness as people do not know about ZSE.
FBC Securities research and investment analyst Enock Rukarwa said the new product would offer investment alternatives and more liquidity on the stock market.
“Volatility is the biggest challenge with blue chip counters on ZSE,” he said. “Volatility or market risk refers to fluctuations in stock prices due to various macroeconomic and socio-political factors.”
ETFs are similar to mutual funds, hence they are tax-efficient.
In the interim, the investment community is not satisfied with the transactional cost of investing in equities that include the Securities and Exhange Commission levy, stamp duty, capital gains and the ZSE levy, among others.
Generally it costs almost 5% of the total invested funds to invest and exit the stock market in Zimbabwe.
“ETFs are generally trusted funds, which do not attract taxation as compared to direct investment on ZSE counters, hence it reduces investment transactional costs,” Rukarwa said.
“So portfolio diversification is another benefit of ETFs as it combines various counters or investments under one product bundle.
“There is reduced volatility on an ETF as the index incorporates changes in all variables making up the ETFs.
“A good example is the disparity in stock price changes in the Old Mutual/ Econet and changes in the Top 10 Index, assuming the index is an ETF.”
However, Rukarwa believes that the product might not attract takers due to continued fiscal and monetary policy inconsistencies by both central bank and treasury officials.
“This is a new product in the Zimbabwean investment space and potential ETF sponsors or market makers might take a cautionary stance in putting funds in these instruments initially due to fears,” he added.
“More so, the benefit to the ETF sponsor is not clear, making it not that attractive to investors.
“The ETF sponsor has to sell the accumulated basket of assets (ETF) at a premium on the primary market at initial public offering in order to salvage value on the investment.”