Foreign investors dump ZWL$6bn ZSE stocks

PHILLIMON MHLANGA

Zimbabwe Stock Exchange (ZSE) has been swamped  by a wave  of selling spree,  with foreign investors offloading  stocks worth almost ZWL$6bn in the first six month of the year, largely due to worries about government policy inconsistencies, Business Times can report.

Worsening the situation for offshore investors has been the difficulties in repatriating proceeds and dividends to countries of their origin, which have been undermining the local bourse.

Foreign investors, who used to rush to ZSE as a go-to-destination with huge financial inflows, are losing faith in the local bourse, becoming net sellers  for the first six straight months of this year.

Business Times can report that the net selling by foreign investors stood at ZWL$5.8bn between January and June this year.

They sold  local stocks worth ZWL$579m  in January and ZWL$569.9m in February, according to official  data obtained  from the ZSE.

In March, they offloaded local shares worth ZWL$576m.

They also sold off ZWL$1.339bn, ZWL4816.3m and ZWL41.959bn in April, May and June respectively.

Foreign investors bought local shares to the tune of ZWL$1.13bn of local equities, meaning offshore investors were net sellers.

The selling spree is expected to continue.

Analysts who spoke to Business Times  this week said this has exposed underlying weaknesses in Zimbabwe’s capital markets, something which has left the regulators scrambling to regain their confidence as foreign funds  become more cautious about investing in Zimbabwe stocks.

They said the ZSE should be more worried  by ‘too much’ selling  of its stocks by foreign investors.

It is understood that the foreign investors who are already trading on the ZSE are not bringing in new money because of confidence issues.

But, it’s the old money which is being traded.

About ZWL$84.1m worth of local stocks were bought in January while shares worth ZWL$77.2m were bought in February while ZWL$121m worth of shares were bought in March, ZWL$362.9m,  ZWL$332.5m and ZWL4149.9m shares were bought in April, May and June respectively.

“The ZSE counters remain undervalued in US$ terms and there is a confidence deficit. The foreign market was a net seller having sold ZW$5.84bln and bought ZW1.12bn,” research firm FBC Securities  said.

Stock exchanges are closely followed by foreign  investors as it mirrors the performance of the economy.

Analysts said  it is the confidence issue following the re-introduction of the local currency, which elevated the risk in Zimbabwe’s capital markets.

“Usually a foreign investor wants to be rewarded. But, in Zimbabwe the investor is penalised for the risk. Dollarisation had made Zimbabwe a safe haven for foreign investors. But the return of the Zimbabwe dollar, which  continues to plunge against major currencies has worsened the situation,” an investment analyst told Business Times.

“Foreign investors are also experiencing serious bottlenecks in repatriating dividends back home.”

Although  the stocks at ZSE have been soaring in Zimbabwe dollar terms, with market capitalisation  spiking by a whopping 137% to close ZWL$745.18bn in June and ZWL$815.3bn this week on Monday, from ZWL$317bn attained at the end of December 2020, the picture has been less positive with the overall market value in US$ term.

FBC Securities said the stock market performed considerably well in the first half of 2021, owing to undervaluation sentiments, high inflation and exchange rate depreciation.

“The major highlight for the first quarter was a CBZ trade worth ZW$2.5bn involving the Public Service Commission and an undisclosed Investment Consortium. The second quarter of 2021 was largely characterised by growth in retail investors demanding small to medium tier equity securities. Resultantly the Small Cap Index jumped by 1 500 percentage points to settle at 190 131.5 as at end of June 2021,” it said.

‘The All Share Index moved up by 135% compared to Dec 2020 to settle at 6,194.88 points. The Top 10 and Mining Index increased by 89% and 50% respectively compared to Dec 2020.”

Despite the dramatic spike in Zimbabwe dollar values, the investors do not enjoy high profitability in real term, analysts told Business Times.

Recently released financial results of companies indicate no real growth in output as foreign currency shortages, power outages, low disposable income and increasing costs of operations all continue to weigh down a possible recovery and growth.

The bigger driver  of the spike was inflation.

A look at the recent financial results of listed companies, one would not fail to notice that a larger portion of growth in corporate earnings, which sent stock figures higher in the six months to August, were facilitated  on a larger scale by adjustments for inflation.

Market analysts believe that one point that should not be overlooked is that the real value was not much.

As a result, foreign investors are finding it difficult to hedge against economic upheavals.

But, as it stands, the exchange has become a club of a handful of stocks that not only determine the movement of the bourse but also the pace.