African Capital Markets News » Zimbabwe

Zimbabwe Securities Commission refuses licence for ZSE bourse

Tom Minney — Sat, 17 Dec 2011 18:45:57 +0000

The Securities Commission of Zimbabwe (www.seczim.co.zw) has declined to grant the Zimbabwe Stock Exchange (www.zse.co.zw – under maintenance), an operating licence, according to local media, and is challenging the exchange to provide a business plan. The Financial Gazette reports that the ZSE failed to provide critical information demanded by the regulator. ZSE CEO, Emmanuel Munyukwi, reportedly dismissed the SECZ claims, saying the exchange had complied with all requirements in terms of the law: “There is nothing like that. As far as I know we have confirmed and verified that all the required information is with the regulator,” he said.
According to a report in Zimbabwe Independent SECZ CEO Tafadzwa Chinamo summoned all members of the ZSE to attend a meeting. The Commission is reported to be concerned that the exchange has not automated and done away with the current paper-based trading system, despite suggesting that could happen by the end of 2011. However, the call-over meetings in Zimbabwe are often more active and lively than the screens of some of the less liquid African exchanges, which may even only record a few deals a day.
SECZ also said only 3 out of 20 stock-broking firms had been registered by the commission as having sufficient capitalization to continue and would issue their licences by circular. The regulator said there was concern that the exchange and most stock-broking companies did not get enough income to cover their expenses and remain viable, due to falling trading volumes. The Commission charges a yearly fee of US$3,000 for stock-broking firms and US$1,500 for individual stockbrokers.
According to the reports, the SECZ accused members of abandoning the exchange, given its current state of affairs, saying they needed to be proactive in the development and running of the exchange. It issued a circular to stockbrokers saying the ZSE had to comply with its licencing requirements and had to provide SECZ with information specified in Section 30 of the Securities Act, like other capital market intermediaries and “given that it operates as a Self Regulatory Organisation”.
The capital markets regulator reportedly wrote: “It is worrying therefore that the commission has not yet issued the ZSE an operating license due to the failure by the ZSE to provide the required information. Of particular concern to the commission is the non-submission of the 2010 financial statements which would enable the commission to verify the exchange’s capital adequacy. Also of concern is the lack of a business plan to satisfy the commission that the ZSE is working towards specific goals in developing the market.
“The exchange is owned by the members and as such it is the responsibility of members to ensure its smooth running. Members have a responsibility to resource the ZSE and see to it that the necessary management structures are established and supervised for the day- to-day operations of the exchange,” said Chinamo. “As the Commission we have reason to conclude that members have abandoned this responsibility and we seek to establish members’ position.”
The meeting was adjourned after brokers failed to reach consensus and they have nominated a 5-member committee, working under acting ZSE board chairperson Eve Gadzikwa, to sort out several issues affecting the viability and integrity of the exchange and report within a week. The committee includes veteran stockbrokers, Tediuos Matsaira, Bart Mswaka, Jeff Mhlanga, Edward Mapokotera and Rufaro Zengeni.
Chinamo reportedly added: “Given the important role members play in operating the exchange the Commission is concerned by the non-transparent manner in which new members are admitted. Several applications are awaiting approval months after submission resulting, in a number of firms operating without two brokers as stipulated in the SEC rules.” One broker was reported as saying that only having 30 stockbrokers was a limitation: “I believe that if the membership grows the bigger the pool of ideas we have and this can increase the pace of transformation of the market,” a leading broker indicated.

Broker supplies clients with faster African investor relations (IR) data

Tom Minney — Sat, 08 Oct 2011 10:29:45 +0000

Another step forward for Africa-based investor relations (IR) specialist Rob Stangroom, who helps companies build excellent corporate IR websites and get their results out widely and quickly to investors. He gives African companies the chance to get up to speed with best global practice in making up-to-date transparent information available and accessible to investors, analysts, fund managers and the public.
Last week he announced that Zimbabwe-based stockbroker Lynton Edwards Securities (www.lynton-edwards.com) is using data direct from corporate IR websites to service clients’ information needs about Zimbabwe-listed companies. LES uses their own website to link corporate investor relations website data, news and corporate actions directly from the listed company websites.
According to Rob in a press announcement: “This model avoids the pitfalls of having to re-process investment data for brokers, who in Zimbabwe, have traditionally struggled with ensuring that the Internet is used to efficiently disseminate data to investors. A review of a few Zimbabwe-based broker websites shows out-of-date and incomplete information and the new LES website is a win-win situation for brokers and the listed companies covered.”
We know the problem of out-of-date and irrelevant African websites only too well. When will some African companies and securities markets realize that the Internet is their window the world, their highway to give information about what they are doing to investors?
Zimbabwean companies are facing pressure to increase shareholding by “indigenous” Zimbabweans, so Rob believes a good retail shareholder strategy “should be on the agenda for every listed company. Firstly, it makes commercial sense, it makes sense from a governance perspective and lastly, it’s a means of mitigating political risk.” He adds that it also benefits the stockbrokers, who give their clients what they need.
Rob manages www.africanfinancials.com, Africa’s largest free portal of online annual reports and he also blogs on www.africaniscool.com.

Rencap bidding to take over Zimbabwe stockbroker?

Tom Minney — Thu, 06 Oct 2011 10:56:28 +0000

Media report that Renaissance Capital (www.rencap.com), a unit of Russian investment bank Renaissance Group, is drawing closer to a takeover of one of Zimbabwe’s largest stock-broking firms, Lynton Edwards Securities (www.lynton-edwards.com - LES). This could upset small brokerage firms for whom Rencap has been a key source of business from foreign investors that dominate the Zimbabwe market.
According to the report in Zimbabwe’s Financial Gazette, RenCap has approached the Competition and Tariffs Commission (CTC) seeking regulatory approval for the acquisition of LES. It says CTC assistant director in charge of competition, Ben Chinhengo, confirmed that the commission was scrutinising a proposed transaction, describing it as a merger between the two companies: “The commission is currently examining the merger. It takes up to 90 days and we are within that scope.” The report quoted a stockbroker as saying the market rumour is that the transaction is nearing completion.

“No intention to acquire”
However, the report also notes that both LES and Rencap have declined to confirm the transaction, and Rencap is an important source of business for many local stockbrokers. It quoted LES managing director, Murray Lynton-Edwards, saying:”We were in talks 3 years ago but nothing was concluded.” Renaissance Group’s head of Zimbabwe and Zambia operations, Robert Reid, denied it: “We enjoy a very strong relationship with local brokers. We value those relationships and we are always talking to them and that is how we have set up ourselves in Zimbabwe. At the moment we have no intention to acquire any local broker or, to seek to grow our equities business organically by applying for a licence.”
RenCap is a leading independent investment bank operating in Russia, the Commonwealth of Independent States, Central and Eastern Europe, Africa, Asia and other high-opportunity emerging and frontier markets. It has spread its business across several securities traders and some smaller stockbroking firms fear it will direct all its business towards LES. It started investment banking in Africa in 2006, committing over US$5 billion in capital-raising and financial advisory transactions.
LES was formed in 2004 and has over the years grown to become one of the biggest players on the country’s capital markets, competing closely with Imara Edwards Securities and one of the few profit-making brokerage firms on the ZSE. Stockbrokers charge 1% brokerage fees on every transaction. One source quoted said the value of the transaction would be about US$1 million.
LES has reportedly been RenCap’s preferred broking firm and a takeover would mean that RenCap would minimise its cost of trading on the ZSE and create possible dominance by LES on all foreign investor deals. LES would also benefit by having a much stronger capital base for future deals.

Rencap in Zimbabwe
Official statistics show that the ZSE is largely driven by foreign investors, whose participation continues to rise steadily: 22% in January, 53% in March and peaking at 71% in May.
Renaissance Partners, RenCap’s principal investment unit, is a major shareholder in Bubye River Conservancy, Africa’s largest privately-held wildlife conservancy, encompassing 324,000 hectares in southeast Zimbabwe. It is located in the Lowveld, 60km from the South African border, straddling the Bubye River. RenCap has also invested in a 290-hectare urban development project in Zimbabwe and has board representation in CBZ Bank, the country’s largest commercial bank by both assets and lending.
The group provided financial advisory in Essar Africa Holdings Limited’s US$750m acquisition of Zimbabwe Iron and Steel Company, now NewZim Steel.

On indigenization
Rencap’s Reid said: “We are hosting on a weekly basis, the biggest corporates from Russia, India, China and other parts of Africa. Clearly, one of the key questions they ask is what is going on with indigenisation. Those that are interested in investing here understand that there is a need for some form of local empowerment, but the challenge has always been in the implementation of these policies. It is not unique to Zimbabwe; South Africa has been trying to formulate and implement BEE (black economic empowerment) policies since the 1990s.”

Electronic trading and central securities depository coming for Zimbabwe?

Tom Minney — Sun, 04 Sep 2011 14:00:40 +0000

A company has been engaged to supervise the transition of the Zimbabwe Stock Exchange to electronic trading. A document on the change has been presented to Cabinet and issues around setting up a Central Securities Depository including the shareholding structure. According to a report in the Government’s Herald newspaper, Finance Minister Tendai Biti told a breakfast meeting organized by the Securities and Exchange Commission of Zimbabwe and the ZSE that the CSD could be in place by year-end.
The aim is to improve stakeholder relations and explore possibility for other capital or financial markets to be set up. Minister Biti said the CSD was a critical part of a modern capital market system as it reduced the payment cycle, enhanced transparency and helped monitor the shareholding thresholds of foreign investors participating on ZSE.
He said that the CSD would help prevent irregularities. Apparently the minister said that currently only about 20 investors accounted for most of the trading in the 79 listed counters. He claimed that the CSD will improve liquidity, promote market integrity and transparency while minimising market manipulation, fraud and financial crime.
According to a report in a South African newspaper called “Sunday Times Zimbabwe”, the Minister would also like to modernize the ZSE Act and the Securities Act and possibly introduce a “super regulator”, similar to the UK’s Financial Services Authority (in June 2010 the UK Government announced plans to abolish the FSA and split its functions). This report claims that 20 of the “shadowy players” were virtually controlled by the same individuals, and Renaissance Financial Holdings Limited was accused of wrongdoing because of insufficient measures to detect insider dealings.
According to the Herald, the Minister said: “The main issue being dealt with is the shareholding structure of this systematically important institution (CSD), which should reflect national ownership by both the public and private sector players.” He said that the National Social Security Authority, the Reserve Bank of Zimbabwe or the ZSE would own at least 51% of the CSD company. Another significant shareholder will be Chengetedzai, a local private firm which is overseeing the establishment of the electronic trading system (the website http://chengetedzai.com/) appears to be just a title page.
The government seeks to demutualise the bourse, which it believes will enhance accountability and speed modernisation. Currently the bourse is still an association of stakeholders while demutualization would mean turning the exchange into a company driven by the profit motive or other goal. Minister Biti said demutualisation was critical to prevent cartels of members from dictating the affairs of the bourse, which created credibility crises and could put off investors. There has long been tension between the ZSE and the SEC over jurisdiction and self-regulation.
ZSE trading is done in daily “call-over” sessions when brokers gather around a table and bid against each other. However, trading is more active than on many more automated neighbouring exchanges.
According to the report, the Minister said: “When you go to the Zimbabwe Stock Exchange and see the way they trade it gives the impression that we are still stuck in 1950. It is as if someone pressed a pause button on the TV and everything stopped. We have to modernise and part of it is coming up with a CSD,” he said.
SECZ chairperson Mrs Willia Bonyongwe said the country wanted to set up more securities and capital markets and challenged innovative Zimbabweans to come forward with proposals. She suggested markets could assist in trading equities, bonds, quasi or hybrid financial instruments, asset securitisation and unitisation, hedging or risk commodity markets and private equity instruments, or even trade in agriculture and mining products. The ZSE is the only active capital market.
In early August the ZSE website (www.zse.co.zw) was hacked twice in early August and used phishing and has currently disappeared.

Afreximbank has $100 mln to boost Zimbabwe businesses

Tom Minney — Mon, 09 May 2011 08:51:41 +0000

The African Export Import Bank (afreximbank.com) has created a US$100 million facility to recapitalise Zimbabwean companies. Industry and Commerce minister Welshman Ncube is reported in local media as saying that 4 local financial institutions are ready to disburse nearly US$70 million as part of this. They are TN Bank, FBC Bank, BancAbc and NMB Bank.
According to a report in the Zimbabwe Independent newspaper, Ncube said: “These banks have already signed agreements with Africa Import and Export Bank (sic) on how to operate the facility. Local companies may access the funds through the Industrial Development Bank of Zimbabwe (IDBZ), Post Office Bank (POSB), Agribank and ZB bank. It is up to industry to use these financial institutions to access the resources.”
Ncube was addressing delegates at a conference at Zimbabwe International Trade Fair. He said companies should look at potentially large markets in the Common Market for East and Southern Africa and South African Development Community. The paper reports that COMESA and SADC are in talks on setting up a single monetary union and a free trade area by 2016. A tripartite summit is scheduled for South Africa this month.
He added: “Government appreciates the efforts of these banks in making lines of credit available. Internally government originally availed US$20 mn under the Special Drawing Rights (SDR) for distressed companies fund which was subsequently leveraged by US$50-70 mn and transformed into ZETREF (Zimbabwe Economic and Trade Revival Facility).”
Ncube said the current situation where 80% of retail shelves of basic commodities was taken up by imported goods was unsustainable in the long-term. Latest balance of payments projections showing total imports rising from US$$3.2 billion in 2009 to US$3.6 billion in 2010: “This imbalance is further aggravated by the fact that the composition of exports is highly concentrated on raw materials, with mining contributing 52% of total exports in 2009, agriculture 13% and manufacturing contributing 18% in the same year.”
Afreximbank was established in Abuja, Nigeria in 1993 by African governments, African private and institutional investors, as well as non-African financial institutions and private investors for the purpose of financing, promoting and expanding intra-African and extra-African trade. It is formed through an Agreement signed by member States and multilateral organizations (which confers on the Bank the status of an international multilateral organization) and a Charter, governing its corporate structure and operations, signed by all Shareholders. The authorized share capital is $750 mn.

Brainworks fund links indigenization and private equity in Zimbabwe

Tom Minney — Tue, 05 Apr 2011 00:26:23 +0000

Zimbabwean private equity firm Brainworks Capital Management has reportedly launched a $20 million fund targeting Zimbabwe’s agriculture, financial services, mining and telecommunications sectors, according to a report on www.privateequityafrica.com.
The Herald newspaper says Brainworks Capital was established earlier in 2011 and will enable Zimbabweans to own stakes in a wide range of companies as required by indigenization laws. Brainworks is offering 400 milion ordinary shares at US$0.05 each to pension funds and local and foreign institutional investors.
According to the Herald, Brainworks is targeting an internal rate of return of 30% on its investments and looks for equity stakes of at least 25% and representation on the board of its investee companies. It aims to hold investments for 3-5 years. It was founded by investment banker George Manyere, who used to work with the International Finance Corporation, and chartered accountant Mr Walter Kambwanji who used to work with HSBC. They have a combined 12.9% shareholding in Ecobank Zimbabwe, formerly Premier Banking Corporation. Mr Manyere is the managing partner and Chief Investment Officer and Mr Kambwanji is a partner and Chief Finance Officer.
The fund has reportedly arranged $6.8 million in bank financing. It aims to invest the biggest part of its funding in gold mining. In January Cape Range Ltd (www.caperange.com.au), listed on the Australian Securities Exchange, announced that its subsidiary Cape Range Zimbabwe (Private) Ltd has entered an option agreement with Brainworks subsidiary Brainworks Capital Mining (Private Ltd), in which Brainworks would offer $2.4 mn for 30% of the company and become indigenization shareholder. Cape Range comments: “This transaction is seen as an extremely positive move forward for the Company to operate in Zimbabwe, as Cape Range endeavours to comply with the Zimbabwean Indigenisation and Economic Empowerment Act.” However, the option expired on 31 January.
Another subsidiary, Brainworks Capital Financial Services, assumed effective ownership of the 12.9% shareholding in Ecobank Zimbabwe and it can boost its stake to 30% in line with indigenisation approval conditions that were set when Ecobank invested in Premier.
Non-executive directors are: Mr Richard Muirimi (chairman), Vulindlela Ndlovu, Alwayn Scholtz (Scholtz Attorneys in South Africa), Swiss-based Cornel Vermaak and German Dirk Harbecke.

Zimbabwe launches COMEZ Commodities Exchange

Tom Minney — Tue, 18 Jan 2011 09:46:40 +0000

The new Commodities Exchange of Zimbabwe (COMEZ) is open, but no date is yet set for the start of trading. At the launch on 14 January, Industry and Commerce Minister Welshman Ncube said the exchange would be managed by the State, banks and farmers’ unions, according to a report in Bloomberg’s Business Week.
Zimbabwe previously had a thriving Commodity Exchange, which was closed in 2001 when the Government gave the monopoly on corn and wheat trading to the Grain Marketing Board. COMEZ will end the GMB monopoly, although the State will continue to play a strong role.
Bloomberg quotes Ncube saying: “We should create a transparent, open and accessible commodities market where both buyers and sellers can participate knowing the prevailing prices.”
To start with the new commodities exchange will trade only grains, cereals and oil seeds. The chairman of Comez, Wilson Nyabonda (the previous president of the Zimbabwe Commercial Farmers Union) said that private investors would be able to acquire shares in COMEZ.
Zimbabwe needs 2.09 million metric tons of corn (maize) the staple food according to the UN World Food Programme and the Food and Agriculture Organization, but the last harvest was 1.35 mn mt and 1.68 mn Zimbabweans depend on food aid. The winter wheat requirement is stated at 410,000-450,000 according to some sources, and the harvest was reported at 10,000 mt.
According to a recent report in the businessdigest of the Zimbabwe Independent, agriculture in Zimbabwe is recovering well, particularly tobacco, partly aided by subsidized fertilizer. However, there is a huge need for financing to rehabilitate irrigation schemes and improving farms, as well as supporting the recently settled “A2 farmers”.
There is a trend to set up commodity exchanges, with strong backing from donors. The leader in Africa is SAFEX, the commodities and futures arm of South Africa’s JSE Ltd (www.safex.co.za). Next is the new and fast-growing Ethiopia Commodity Exchange (www.ecx.com.et, trading started in April 2008). There is an Agricultural Commodity Exchange for Africa (www.Aceafrica.org, based in Malawi but serving smaller farmers in 5 countries) and Nigeria has Abuja Securities and Commodities Exchange. ZamACE in Zambia is active (www.zamace.com), followed by Uganda Commodity Exchange (www.uce.co.ug). Malawi and Kenya ACEs (www.kacekenya.co.ke) for the domestic market appear to have run out of donor funding, according to web reports and the Kenyan Government and the East Africa Grain Council are considering a replacement in Kenya. Projects and studies are underway in Ghana and Tanzania and Sudan is watching developments with interest.
Commodity exchanges are part of a move to try to revitalize agricultural productivity in Africa and should be seen as part of a holistic solution, including agricultural extension, support infrastructure for small farmers including quality warehousing, and finance as well as market price information.

Zimbabwe Minister “blocks” Duration gold miner’s Toronto SE listing

Tom Minney — Fri, 14 Jan 2011 21:23:55 +0000

According to media reports, Zimbabwe’s Indigenization Minister Saviour Kasukuwere is declining to give permission for leading gold miner Duration Gold (www.durationgold.com) to raise US$7 mn by listing on the Toronto Stock Exchange (www.tmx.com).
According to a report in businessdigest of the Zimbabwe Independent newspaper, the minister wants an empowerment plan detailing how Duration will empower black Zimbabweans in line with the Government’s 2010 economic empowerment regulations under which foreigners must sell controlling shareholdings to black Zimbabweans.
He also apparently believes the money could be raised locally on the Zimbabwe Stock Exchange.
The minister confirmed that Duration had written for permission to list but told the newspaper “I cannot comment on anything”.
The company is an investment by Clarity Capital (www.claritycapital.com), a US-based fund founded in 1996 by Allan Dolan, that claims on its website: “Clarity has the capital and in-house expertise to create and grow successful businesses. We don’t just invest in promising ventures, we incubate and operate them.
“Clarity specialises in the minerals, life sciences, energy and creative industries sectors. Our entrepreneurial team of over 25 technical and commercial experts, from scientists, engineers and geologists to accountants, lawyers and financiers, are passionate about building value. Our goal is to deliver returns of 5 to 10 times our invested capital over a 3- to 5-year period.”
A fellow company, Whetstone Minerals, is listed on the TSX. According to the news report, Duration intended to retain 30% of the capital raised outside Zimbabwe for head office expenses. The newspaper does not report any comment or confirmation from the company.
Duration’s website describes it as “a Zimbabwe focused, private, emerging gold producer and explorer. The Company, majority owned by Clarity Capital and its employees, currently has a global resource base of 4.2 million oz of gold. Formed in 2006, Duration partnered with two long standing Zimbabwean mining families, the Muirs and the Thompsons, and now owns 5 core assets with historic production of 4.6 million oz. Each core asset has the potential to produce over 1 million ounces of gold. Duration is licensed to market and sell its gold on the open market. It sells gold at international spot prices and receives freely transferable foreign currency in return. The company is cash flow positive and generates a healthy EBITDA from its current operations.
Duration’s objective is to develop its existing asset base into a 350,000 oz per year producer, based on 5 bankable feasibility studies targeted for completion by 2014. Acquisition of additional producing and advanced stage assets will also bolster the company’s annual production.”
Zimbabwe’s economic regulations gazetted in March 2010 gives the Minister authority to approve and disapprove deals involving foreign equity participation. He previously sought to block the sale of Barclays Bank subsidiary, Custodial Financial Service, on grounds that the bank did not comply with indigenisation and economic empowerment regulations. This deal was part of the sale by Barclays Bank plc of its African custody businesses to Standard Chartered Bank.

What’s Up on Zimbabwe Stock Exchange?

Tom Minney — Thu, 30 Dec 2010 12:42:34 +0000

The useful businessdigest of the Zimbabwe Independent (www.theindependent.co.zw) newspaper has published two revealing interviews by Paul Nyakazeya with the CEO of the ZSE, Emmanuel Munyukwi, and the CEO of the Securities and Exchange Commission, Alban Chirume, as well as other market experts on the trends and undercurrents on the Zimbabwe Stock Exchange (www.zse.co.zw) in 2010 and 2011. Here are some extracts:

The Stock Exchange CEO
ZSE CEO Emmanuel Munyukwi says in his interview that 2010 could have been “a much better year” compared to 2009 had it not been for the indigenisation regulations gazetted in March. Munyukwi said the market was bullish in the first quarter, trading was mixed after the empowerment regulations were announced, but it recovered in the last quarter: “In April we raked in about US$5 million while months before that we were raking in more than US$20 million a month. Since the regulations were gazetted, we have seen a negative impact on trade.”
Munyukwi said he had endured a stressful time during Zimbabwe’s lost decade keeping interest alive in a stock market disconnected from the rest of the world. This year “the market performed better, some counters that most investors would not buy on the first go performed really well.” He forecast that market capitalisation could end 2010 above US$4 billion not much change on the year which opened at US$3.97 bn.

The market in brief (figures Zimbabwe Independent):
From 4 January to 30 November a total of 6.2 billion shares were traded worth US$3.6 billion. Foreign buying was US$1.1 million against foreign selling of US$0.17 million. Beverages giant Delta Corporation had the biggest market capitalisation at US$731 million, followed by Econet Wireless Zimbabwe (US$435 mn) and Innscor Private US$292 mln).

ZSE Winners.. (year to 17 December)
National Tyre Service: up 140%
DZL & Zimplow: up 120%
Colcom: up 118%
Hwange: up 114%

..and Losers (year to 17 December)
PG Industries: down 69%
African Sun: down 78.3%
RedStar: down 80%
TN Holdings: down 83.6%
Zeco: down 85%

The Economist
Economist David Mupamhadzi told businessdigest that the performance of the ZSE will continue to be driven by the performance of the economy. The anticipated strong performance of most key sectors of the economy in 2011 would boost the market.
“However, political developments will also play a big role in influencing the performance of the ZSE.” He said reports of an election in 2011 could encourage some investors to “wait and see” and added: “Furthermore, depending on the prevailing political conditions, especially linked to the constitution, referendum and the much talked-about elections, the ZSE could take a serious hammering if there is no peace and stability in the country.”

The Regulator
SEC CEO Alban Chirume (AC) from his interview on the benefits of demutualizing the ZSE:
“We are interested in the reform of the exchange by way of complying with the Act and SI (Statutory Instrument) 100 of 2010. Corporatisation of the exchange which will result in the separation of trading rights, ownership and management (independent board and executive management) will meet the requirements of our regulations. We are keen to see that process moving faster. The stock exchange can advise where it is and when they expect the process (of demutualisation) to be completed… The current status could be working to the detriment of the market. Liquidity inflow is also a function of the confidence that investors have in a market. We need to build that confidence ourselves.”

Zimbabwe Stock Exchange prospects better for 2011, reported in businessdigest

Tom Minney — Tue, 07 Dec 2010 10:38:30 +0000

This report is republished for our readers’ interest, from the Zimbabwe Independent (www.theindependent.co.zw) newspaper.
Economist Brains Muchemwa said stock price movements on the Zimbabwe Stock Exchange, like other commodity prices, would be determined by economy-wide liquidity levels. “The liquidity crunch in Zimbabwe has subdued the upward movement of the ZSE. Therefore the fortunes of the ZSE, from a liquidity dependence perspective, hinge on the ability of the economy to generate more liquidity via exports, lines of credit and the level of foreign participation on the bourse,” he said.
He said although the general perception was that the majority of stocks on ZSE are largely trading at a discount, the liquidity crunch, uneasiness on the political front and indeed the debt-infested corporate balance sheets would continue to restrain significant surge in stock prices.
“Shrewd investors prefer businesses that generate strong cash-flows, the reason why therefore the argument that most companies on the ZSE such as ZPI and African Sun are trading below their replacement costs is difficult to defend and subscribe to,” Muchemwa said. “Counters exhibiting strong cash-flows and decreasing current and potential gearing levels are what investors will most pocket on the market, and these will be the value drivers of the ZSE going forward.”
Economist David Mupamhadzi told businessdigest that the performance of the ZSE will continue to be driven by the performance of the economy, and the expected strong performance of most key sectors of the economy in 2011 was good news for the ZSE.
“However, political developments will also play a big role in influencing the performance of the ZSE. Reports of an election in 2011, could force a number of investors to adopt a wait and see attitude,” he said.
“Furthermore, depending on the prevailing political conditions, especially linked to the constitution, referendum and the much talked about elections, the ZSE could take a serious hammering if there is no peace and stability in the country.”
Presenting the 2011 National budget, Finance minister Tendai Biti said the local bourse had been rather “subdued” for the greater part of the year saying “the revival of the economy coupled with the modest improvements in industrial capacity utilisation has not significantly spurred activity on the Zimbabwe Stock Exchange”.
“Rather negative investor perceptions coupled with persistent liquidity challenges continue to subdue trading on the ZSE over the period to August,” Biti said.
Foreign investors maintained the lead with their participation increasing from an average of 20% in August to about 40% and 50% of total shares in September and October.