Stock markets deepening in 2022, a win for investors 

30 Dec, 2022 - 00:12 0 Views
Stock markets deepening in 2022, a win for investors  The ZSE

eBusiness Weekly

Tapiwanashe Mangwiro

The local stock market activity in 2022 was a muddled one with the Zimbabwe Stock Exchange (ZSE) experiencing contrasting two halves and the Victoria Falls Stock Exchange (VFEX) enjoying its best year.

Both markets saw new listings of different classes, be it primary listings or secondary ones, which has led to some saying it is the best year since 2000.

Balancing the economy which was overheating led to some carnage on the ZSE and gains on the VFEX. However, analysts and investors have agreed that despite the hiccups, it has been a good year as we saw the first Real Estate Investment Trust (REIT), more Exchange Traded Funds (ETFs), a debt bond and a depository receipt.

Treasury through Statutory Instrument (SI) 103A of 2022 on securities exchange put into effect the laws on trading on the Zimbabwe stock Exchange (ZSE) in May this year.

In June, the Reserve Bank of Zimbabwe hiked interest rates which squeezed liquidity and also Treasury further incentivised trading laws on the VFEX.

Commenting on the trading year, economist and investment banker Dr Alfred Mtimkhulu, said it has been a good year for the local stock markets especially when viewed with an economic development lens than a trading one.

“We saw capital being raised to fund expansions and new projects, and, for that, we saw equity and debt being floated to the public which attracted significant foreign participation. We also saw purely secondary market listings such as the ETFs,” Dr. Mtimukhulu said.

The investor said, it is on the capital raising front that we must be really excited about, for that is a lead indicator of economic resurgence which, at best, will manifest in five to seven years.

Another economist, Enoch Rukarwa, a research analyst with FBC Securities, believes that product development around REITs has been encouraging as a way of creating financial instruments diversity and least costly financial securities.

“Prolonged liquidity challenges will continue to anchor a bearish sentiment going into the first quarter of 2023. However, this flat to bear market present buying opportunities for select counters which are now undervalued but with solid fundamentals,” Rukarwa said.

Tafara Mtutu a research analyst with Morgan and Co, alluded to the sentiments as he said: “The sentiment in the market was largely negative for the most part of the year, although the first three to four months were good. The mood was dampened when the interest rates were increased and it affected liquidity in the market.”

According to Mtutu, it has been the best year for the ZSE for as long as anyone can ever remember, we saw four more ETFs list, the REIT and another depository receipt on the VFEX as well as the debt listing on the USD bourse.

“This is a year that we might not repeat anytime soon and investors are happy that the market was deepened. Gold coins also came to the party and investors are appreciating it already,” Mtutu said.

Investment managers, analysts and brokers have all been praising Government for enabling them to deepen and widen the markets as they are known.

Zimnat Asset Managers general manager, Farai Gwaka, believes new products such as exchange traded funds (ETFs), real estate investment trusts (REITs), amongst others, are the beginning of an exciting new chapter for the ZSE and VFEX.

“We strongly support these new innovative product offerings and they expand asset offerings, deepen market liquidity and sophistication.

“We therefore commend government through SECZ and the ZSE, for supporting the required amendments to the Collective Investment Act, which have made these new innovations possible.

“An area of keen interest in terms of development, going forward, is the local bond market, which in our view is a sleeping giant, as compared to our regional and international peers,” Gwaka said.

There has been fear by investors that the ZSE might be deserted as companies have been flocking to the VFEX which offers more benefits. Although Delta a significant company in the economy said it is not moving to the VFEX as well as diversified firm ART Corporation.

Questions have been asked on what is motivating the counters to delist on the ZSE and re-list on the VFEX and if it will end the existence of the ZSE.

According to Mtutu, the migration to VFEX is driven by the volatility on the ZSE that many companies are failing to stomach and the VFEX has given them such a security.

“We are not saying the VFEX is the best platform yet, but we need to see how it will react as more liquidity circulates in that market,” Mtutu said.

Dr. Mtimukhulu believes migrations to VFEX are just a fade which will be with us for the next three years or so but is likely to reverse.

“VFEX is a USD market and a business with not-so-strong foreign currency earning will struggle to keep shareholders happy while listed on VFEX but let time tell that story. As for ZSE, the timing for new listings rather off for now but we have domestic firms that could spark excitement in that bourse,” Dr. Mtimukhulu concluded.

Rukarwa said: “VFEX migrations have been a phenomenon of chasing broadened capital sources, easy repatriation of dividends, tax incentives and brand positioning.

Given these attendant benefits we may likely see more companies with USD revenue generating operations joining the bandwagon going into 2023.”

Gwaka said: “If one compares the policy thrust and incentives between the ZSE and VFEX, it is clear, in our view that the ZSE is likely to be cannibalised by the VFEX in the near future.

“Most companies that list on a stock market are looking to either raise capital or provide liquidity in real terms to existing shareholders, none of which is being achieved on the ZSE at this juncture.”

Therefore, he believes, the VFEX’s currency of trade, combined with other policy incentives, make it a logical destination for any local and possibly some international companies, to raise capital or to list by introduction.

 

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