A boost for the capital markets

The launch of the Old Mutual Zimbabwe Stock Exchange Top Ten Index Exchange Traded Fund could not have come at the right time as it deepens the capital markets and gives a wider choice for investors to choose from.

Exchange Traded Funds are passively managed, fully funded (unleveraged) open ended funds which track the performance of a specified security.

These include but are not limited to indices, commodities, currencies or any other asset.

The Old Mutual Zimbabwe Stock Exchange Top Ten Index Exchange Traded Fund will track the top 10 counters by market capitalisation which are listed on the Zimbabwe Stock Exchange (ZSE).

The launch of the ETF comes after the capital markets regulator, the Securities Exchange Commission of  Zimbabwe, approved the Securities and Exchange (Zimbabwe Stock Exchange Listings Requirements)

(Amendment) rules which brought about Exchange Traded Products which enabled ZSE to receive applications for listing of Exchange Traded Funds and Exchange Traded Notes.

The capital market is one of the avenues for companies to raise capital and lure foreign investors into an economy as they can participate on the bourse.

Another product the Real Estate Investment Trusts (REITs) is in the pipeline which will allow the players in the insurance and pensions sector to create liquidity.

REITs are securities that are publicly traded on stock exchanges the same way as equities.

They give investors the option to invest directly in the finished real estate products that are already earning money such as residential and office units, hotels or shopping malls or even infrastructure ventures like roads and power plants.

A foreign currency-only bourse, the Victoria Falls Stock Exchange (VFEX), debuted in October and will raise foreign currency for companies.

VFEX was established to kick start the Offshore Financial Services Centre earmarked for the special economic zone in Victoria Falls.

The bourse is seen as a conduit of portfolio investments and foreign direct investment into Zimbabwe and Finance minister Mthuli Ncube says the long term ambition is to make VFEX a platform of trading securities in Africa in hard currency.

These new asset classes thrive in a stable environment where regulation protects investors.

This means that the capital markets regulator and government have to be predictable. Overnight decrees like what happened when trading on ZSE was halted for a month has no room in this dispensation which intends to encourage deeper participation in the capital market.

In his 2021 National Budget, Ncube said the government would deepen the money and capital markets through issuance of different instruments of different maturities (medium and long-term bonds) to allow portfolio flexibility by investors as well as resuscitation of interbank trading would be prioritised, to smoothen monetary policy operations and Government debt management practices.

The economic blueprint, the National Development Strategy 1 notes that the government will during the period target the issuance of medium to long term securities and listing of Bonds on the Securities Exchange Market in order to reduce the cost of borrowing and deepen the capital markets.

The appreciation of the role of the capital markets in economic development is there.

What is required is to match that appreciation with policy intervention and regulation.

Local and foreign investors want an environment where they can take out their money freely from the market.

The capital markets are a low hanging fruit for Zimbabwe.

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