Markets

The multiple forms of “US Dollars” in Zim

BATANAI MATSIKA

Even after suspending duallisted stocks from trading on the Zimbabwe Stock Exchange (ZSE) in order to get rid of implied rates and setting transaction limits on mobile money, the war against parallel market trading is far from over.

In fact, it appears that EcoCash and the Old Mutual Implied Rate (OMIR) are just two pawn pieces on a very large chessboard.

The parallel foreign exchange market has long shifted from the streets as most banks in Zimbabwe (in line with Exchange control directives) have moved swiftly to educate their clients that foreign currency accounts (FCAs) in Zimbabwe are indeed very different.

The concern is on the ability to freely withdraw USD cash and effect telegraphic transfers.

We have noted that most banks in Zimbabwe are failing to meet USD cash withdrawals for Nostro FCA (Domestic) and this has created an alternative Nostro discount market.

This is another parallel market that has emerged.

Economic agents will always take advantage of such arbitrage opportunities to make risk-free profits.

Foreign currency parallel market trading in Zimbabwe always reminds us of the Kuwait’s Souk al-Manakh of the early 1980s.

The Souk AlManakh emerged parallel to the official stock market.

It was an over –the-counter (OTC) exchange where the securities of 45 companies registered in Gulf countries outside Kuwait were traded.

In Arab states those days, only sheiks could grant corporate charters and only corporations could become publicly traded companies.

In addition, the royal family of Kuwait did not freely grant corporate charters for companies and there was basically a shortage of stocks to trade.

This shortage gave rise to an OTC market where shares in companies domiciled elsewhere in the Gulf (Bahrain and UAE) were traded.

At its peak, its market capitalisation was the third highest in the world, behind only the USA and Japan.

Now, more like the Kuwait situation, a parallel Nostro discount market has emerged.

This could potentially evolve into a chaotic currency situation in Zimbabwe where several exchange rates would be quoted for different forms of Nostro FCAs.

That said, we remain cognisant of the deteriorating confidence in the banking sector and emerging risks on the currency front.

Investors on our market should park ZWL balances in value-preserving stocks.

On top of our radar are financial services stocks like Old Mutual Zimbabwe Limited and ZB Financial Holdings.

Both stocks exhibit strong upside potential given the gains from real estate holdings and equity investments.

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