The Zimbabwe Stock Exchange (ZSE) will resume the trading of shares next week minus three fungible securities, nearly a month after the local bourse was forced to suspend trades on allegations of speculative trading which resulted in the devaluation of the local currency.
The three fungible securities that will not be allowed to trade are Old Mutual, PPC and Seed Co International which will have to trade on a to-be established foreign currency exchange, according to people familiar with the developments.
The trio’s fungibility was suspended for a year in March.
Modalities on how the trades in the fungible securities will work are being worked out with a series of meetings being held this week, sources told Business Times.
On June 26, the government announced the suspension of transactions on phone-based mobile money platforms and suspended trading on ZSE as
part of a series of “prudent and coordinated interventions to deal with malpractices, criminality and economic sabotage” amid allegations the platforms were fuelling the rout of the local currency.
Government spokesperson Nick Mangwana alleged there were “fake counters” on ZSE which are epitomised by the Old Mutual Implied Exchange rate (OMIR).
Business Times heard yesterday that a series of meetings were held this week where it was resolved that trading resumes on Monday.
“All is set for the resumption of trading. There are meetings underway to work out modalities on how the fungible shares will be traded on a foreign currency exchange,” a source said.
The resumption of trading comes after the ruling Zanu PF proposed the delisting of Old Mutual from the bourse and allow the counter to Zanu PF acting spokesperson Patrick Chinamasa said fungibility has created an opportunity for the determination of foreign exchange rate in Zimbabwe to be determined from activities emanating from actions of speculators operating on the stock exchange.
Chinamasa said share prices react to investor sentiment and exchange
rates react to demand and supply of foreign currency by importers
He said a share price can therefore not be substituted as a reference indicator for exchange rates because it is not driven by similar
fundamentals, that is, speculators versus importers and exporters are
Fund managers told Business Times that they have been accumulating
cash balances on a daily basis as there are no alternative investment avenues to the stock exchange.
“Fixed income securities offer negative returns. Treasury Bills were
recently auctioned at 15% per annum when inflation was 737.3% in June.
The property market is trading in US$. So when you have cash, the
only home is the equities market,” a fund manager told Business Times.
He said a solution has to be found early before withdrawal requests to
pay pensioners which comes month end.
The fund manager said most portfolios have little investment in fixed income securities and they cannot withdraw from the money market if the investment has not matured.
“Month end is coming; we are wondering what to do. We eagerly await the implementation of the suggested solution,” the fund manager said, referring to the proposal by Chinamasa for ZSE to resume trading minus Old Mutual whose shares will trade on the foreign currency bourse.
More than 50% of investments on ZSE come from pension funds.
An investment analyst said the OMIR cannot be blamed for the exchange rate woes in the economy as the exchange rates are determined through the demand and supply of different currencies.
“In our case, demand for US$ is high because the country imports
most of the products we consume.
To import these products foreign currency is needed and since we don’t
generate sufficient amounts to meet our import needs it is inevitable for
buyers of currency to bid higher,” the investment analyst said.
“Also remember that demand for currency in the country is not coming
from importers alone. The US dollar is now a store of value so every person
whenever they get Zimbabwe dollars they quickly spend it or convert it
into more stable foreign currency.
All this demand obviously pushes the exchange rates higher without the
involvement of the OMIR.”
Another investment analyst said rapid money supply growth has been the major driver of both hyperinflation and the exchange rate over the years, not OMIR and efforts have to be focused on slowing down money supply.
“All the noise around Old Mutual is unfortunate because it is coming
across as interfering with private business and the whole suspension
without notice leaves the country open to questions about adhering to
rule of law which will affect efforts to lure investment into the country,”
the analyst said.
Statistics seen by Business Times showed that the ZSE year to date average daily trade value was ZWL$31,410,928.54. The lowest daily value was ZWL$593,160.17 realised on February 7.
The highest was ZWL$301,063,715.00 on June 26.
The performance of a stock exchange is closely followed by investors to check the pulse of an economy. Foreign investors on the bourse have been struggling to repatriate dividends due to the foreign currency crunch.