Foreign investors are exiting the Zimbabwe Stock Exchange (ZSE) spooked by unsettling policies as they take advantage of the allocative efficiency of the forex auction system to move their money out of Zimbabwe.
The economy is grappling with foreign currency shortages and has turned to the bourse as an avenue for inflows of foreign capital into Zimbabwe.
Statistics from the bourse showed that foreign investors have been net sellers since January amid fears that 2020 will have foreigners selling more than they bought, the first time in three years.
Market analysts say government policies such as the suspension of the fungibility of Old Mutual, PPC and Seed Co International stocks for a year and the closure of the ZSE for a month could have unsettled investors and driven the sell-off.
Trading on the bourse was suspended for a month on June 26 to pave way for investigations into alleged illicit trades that were blamed for the routing of the local unit against major currencies.
When ZSE was told to stop trading, it was enjoying a bull run.
Trading resumed on August 3, minus Old Mutual, PPC and Seed Co International which will debut on the soon to be launched Victoria Falls Stock Exchange (VFEX).
In August, foreigners were net seller by ZWL$391.6m after selling shares worth ZW$485.2m and buying stocks valued at ZWL$93.6m.
In an analysis of the August trades, FBC Securities said the fungibility suspension and ZSE trading suspension dampened the little confidence that had remained for foreign investors.
In September, foreigners sold shares worth ZWL$ 3,782,044,956.28.
They bought shares worth ZWL$ 28,704,145.02.
The September sales were propelled by ASA disposal of its interest in Bindura Nickel Corporation to a Zimbabwean based company.
Market watchers say Zimbabwe is now deemed an unattractive investment destination due to regressive economic policies, perceived disrespect of private property rights and policy inconsistency.
Investment analyst Ranga Makwata said foreigners started leaving when the country began experiencing foreign currency shortages which resulted in delays in international money transfers before the situation worsened to a total blockade with banks failing completely to move funds out of the country.
“Things really got worse when the government introduced bond notes and subsequently reintroduced the Zimbabwe dollar to replace the multicurrency.
The local currency brought back currency risks to investment returns and a time the country was facing a host of other risks,” Makwata said.
He said there have been “many other unsettling policy developments” which have caused even the most hopeful foreign investors to exit at all cost.
“Suspension of Old Mutual fungibility and the eventual trading halt on the ZSE were new lows for the market which shook all investors and those who had an option to invest elsewhere have been exiting, taking advantage of the forex auction and other platforms to take their money out,” Makwata said.
The exit of foreigners comes as regulators are working on VFEX which will be the country’s sole foreign currency-only bourse and is expected to raise funding for capital intensive industries such as mining.
There have been suggestions the foreigners could be readying for VFEX.
Makwata said foreigners don’t see any difference between ZSE and VFEX “especially as both are controlled by the same authorities whose interference has caused some issues in the existing markets”.
He said the closure of ZSE in June came across as “regulatory heavy-handedness” which exposed the weaknesses in Zimbabwe’s legal framework to protect private property rights and enforcement of rule of law.
Another investment analyst Itai Chirume said the sales in June relates to investors selling as prices had risen. “Sales in June related to pure portfolio decisions.
The market had in August come down from the June levels and you would have expected those that sold at high prices to buy at low prices.
They continued selling and that was no longer a portfolio management issue,” Chirume said.
“Sales in August speak to loss of confidence because of the manner in which the market was closed.”
He said foreign investors had few options to use to take their money in and out of Zimbabwe and had been relying on dual listed counters.
That option was closed when government in March suspended for a year the fungibility of Old Mutual, PPC and Seed Co International.
“When the interbank started accommodating investors who want to take their money out, they all of a sudden began a mechanism to exit the market,” Chirume said.
“Theoretically, the idea should work well.”
ZSE is pushing for VFEX and has been on a fine-tuning exercise ahead of its debut after holding interviews for sponsors.
Chirume said the success of the bourse depends on the settlement mechanism which facilitates the ring-fencing of free funds to allow those that want to exit the market.
“They are looking for international banking partners to play that role. VFEX success depends on the settlement arrangement.
Investors have to see differences in the settlement architecture between ZSE and VFEX, failure of which the same ills affecting ZSE will be felt on VFEX.”
Chirume said the auction system has allowed investors to exit the bourse and the challenge in the outlook is to sustain that scenario so that foreigners can exit when they want.
The foreigners can return on the bourse if they are convinced that they can take their money out after selling, he said.