Foreign investors ditch ZSE

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PHILLIMON MHLANGA

Foreign investors’ participation on the Zimbabwe Stock Exchange (ZSE) has plummeted to 17 percent from an all-time high of 60 percent unnerved by the failure to repatriate proceeds and dividends to countries of their origin and the longer vesting period on dual-listed counters.

The stock exchange, which is a go-to destination for those seeking to raise cheap funding, is closely followed by investors as it mirrors the performance of an economy. Since 2015, foreign investors have been
struggling to repatriate their proceeds and dividends causing their appetite to inject fresh money onto the bourse to dip.

“Foreign investor participation was an average 38 percent between 2009 and 2015and reaching a peak of around 60 percent in 2015. Currently foreign participation has dropped to 17 percent and we believe this is largely locked funds which are being recycled for trading purposes,” ZSE chiefexecutive officer Justin Bgoni said.

“The challenges being faced by foreigners have been the failure to repatriate their sale proceeds and dividends to countries of their origin from around 2015, the policy inconsistency such as the 90 day vesting
period of dual listed and the deteriorating macroeconomic fundamentals.”

In June, the Reserve Bank of Zimbabwe (RBZ) directed any investor who purchases shares in dual listed counters on ZSE would be allowed to sell the shares on the bourse or any other stock exchange after a vesting period 90 days. The directive affects eight counters — Amalgamated Regional Trading, CAFCA Limited,Hwange, Meikles Limited, NMBZ Holdings Limited, PPC Limited, Old Mutual Limited and Seed Co International Limited.

Prior to the RBZ directive, foreign investors had taken the route of switching portfolios as a way of preserving value while some had opted to use fungible stocks to move their funds out of the country.

In the absence of foreign investors, who had been carrying the market, the
local bourse has been drifting lower in terms of ZSE trade.ZSE data shows the local bourse traded about US$500m a year between 2009 and 2015 while the average turnover a day during the same period was about US$1.62m.

The local bourse is trading about half what was being traded a year between 2009 and 2015. Market capitalisation has also plunged by almost half.“(But), currently, we are trading below US$ equivalence of US$0.5m per day which is far below US$1.62m average experienced between 2009 and 2015.

The average market capitalisation was US$4 billion in the same period and the market capitalisation as at 30 September 2019 stood at US$ equivalent
of US$2bn.”

The local bourse, which had 79 counters in 2008, now has 61 listed
companies after several collapsed or opted to delist due to financial challenges. Very few are trading positively while the rest are in the red. This has resulted in investor sentiments being hit by low returns and declining corporate earnings.

The decline in capitalisation, analysts said, reflected that the economy has
contracted leading to the erosion of the local bourse’s value. This is bad news for investors seeking to park their money long-term.

Fincent executive director, Ranga Makwata, said foreign trades have supported this market as additional and important source of liquidity on the bourse.

“Now the reduction in participation by foreign investors has negatively affected trading activity on the market with both supply and demand constrained thus affecting price discovery in the process,” Makwata said.
“This partly explains the depressed share prices on the market even as
hyperinflation is largely expected to push local currency prices of assets. A
reduction in market liquidity makes the market less attractive because of the long time it takes to sell shares and the drop in prices that accompany reduced demand.”

He said it could not have come at a bad time, considering that the local
investors already have serious liquidity constraints which tend to make them “net sellers than buyers” due to pressure to meet rising operating expenses.

Stock broker, Itai Chirume, said foreign investors were attracted to the
bourse as it was a frontier market that was not experiencing foreign exchange losses when the economy adopted the multi-currency regime dominated by the United States Dollar.

Chirume said the introduction of a local currency and the 90 day regulation
on dual-listed counters has elevated the risk in Zimbabwe.

“Usually, an investor wants to be rewarded but in Zimbabwe you are
penalised for risk. So, it’s a combination of inefficient exchange market. They also realised that they can’t take their money out. The Reserve Bank came up with a regulation that says they will be able to sort it at 1:1. But, the rate now is1:15 and their money is still not out (of Zimbabwe) and they are not sure if they will be able to take it out at this rate,” Chirume said.

“The investor who is already there will not bring in new money; it will be the old money being traded. And the new investor will also not bring money because of confidence issues.”

Foreign investors have been struggling to remit their dividends prompting the central bank to come up with a US$5m portfolio investment fund to speed up the repatriation of portfolio related funds to foreign investors who have invested on ZSE.

The fund failed to take off as RBZ did not deploy the US$5m seed capital,
resulting in the backlog for portfolio investors running as far back as two years.

Early this year, Delta Corporation said its anchor shareholder, AB InBev, would place US$120m in unremitted dividends and fees in RBZ Savings Bonds thereby reducing pressure on the listed beverages.