The Victoria Falls Stock Exchange (VFEX) is working on rules to raise capital for a guaranteed fund amid revelations the existing prefunding model is not popular with investors and has suppressed trades, an executive has said.
Zimbabwe’s only foreign currency bourse which began trading in October last year, VFEX is eyeing more counters and ending the trading drought at the bourse.
It is wholly owned by the Zimbabwe Stock exchange (ZSE).
The bourse only has one issuer, Seed Co International.
Old Mutual Zimbabwe and PPC are expected to join the bourse, which was established to kick start the Offshore Financial Services Centre earmarked for the special economic zone in Victoria Falls.
Trades have been thin with only one trade on November 11 amid fears the bourse could have run its course after its launch in pomp and fanfare.
ZSE chief executive officer Justin Bgoni told Business Times that the absence of a guaranteed fund was one of the contributing factors to thin trades on VFEX.
“We are working on the rules with a view of a capital raise for the Fund. The current clearing and settlement system requires prefunding. This is not popular with foreign investors,” Bgoni said.
He said the bourse was ahead of its market participants as some participants are currently going
through their internal processes to “fully trade on the market and on behalf of their clients”.
The bourse, Bgoni said, required a critical mass of listings to have liquidity across counters and some investors have adopted a wait and see attitude.
“We are saying that liquidity begets liquidity. It is a vicious circle that we need to break,” he said, adding the bourse is working with “our participants to get approval in their system.
“The more participants we have the higher the chance of getting more trades. We need more counters. Investors need variety on an exchange. This is our major thrust in 2021, getting more counters on VFEX.”
Bgoni said the bourse would be working on liquidity measures such as retail participation and market makers. This is, however, dependent on the availability of more counters, he said.
There are concerns that there seems to be no shares to trade on VFEX as they are held by institutional investors rather than individuals who have a high propensity to trade.
But Bgoni said the bourse was working on introducing online trading for retail investors as part of the liquidity enhancement measures.
“This will provide access to both residents and non-residents with greater access to the exchange,” he said.
Critics say VFEX has not performed according to expectations despite having incentives.
Some of the incentives include lower exchange risk due to trading in hard currency, lower trading fees that compare favourably to other regional exchanges, no capital gains withholding tax on selling; and lower dividend withholding tax for foreign investors.
Bgoni said getting a listing within a month of setting up a new Exchange is a feat that very few other exchanges have achieved.
“New listings normally require at least nine months to be concluded at best and can take up to two years,” he said.
“Our hope is that Covid-19 will slow down in 2021 so that we can take the exchange to regional and international markets.”
VFEX 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.
“Foreign investment is required to close funding gaps required to grow our economy.
As part of the global picture, VFEX is also expected to offer pension funds an opportunity to invest in foreign currency denominated securities, enhancing the ability of pension funds to diversify currency
risks and therefore grow sustainable value for Pension Funds’ assets,” Ncube said at the launch of the bourse in October.