THE Zimbabwe Stock Exchange (ZSE) will establish a regulated platform for the issuance and trading of both Government and corporate bonds as local financial markets continue to mature.Although the project is still in its infancy, experts opine that its successful implementation is likely to deepen financial markets as investors are provided an alternative investment market.
Currently, the ZSE only provides a platform for buying and selling of company shares.
An illiquid market has, however, negatively affected the exchange, with the bourse only managing one listing in the past two years.
In a recent interview, ZSE chief executive Mr Alban Chirume said the platform, which is one of the many plans lined up to improve the bourse, would enable issuers to raise capital.
“It should be noted that the products to be launched by the ZSE will result in affording issuers a chance to raise capital through a regulated platform of the Zimbabwe Stock Exchange; thus, new listings are anticipated, provided the prospective applicants meet the requirements,” he said via e-mail.
A bond market provides an alternative source of debt financing and reduces over-dependency on banking system for funding and reliance on foreign aid.
The drawcard for bonds in any economy is the steady interest rates that it guarantees.
In turbulent economic times, investors usually hedge their position by investing in bonds, but when the economy is performing well they are likely to shift their portfolio into stocks.
As a result, bonds and stocks normally move in opposite directions.
Analysts caution that while the bond market will allow investors to diversify risk, the liquidity crunch will most likely affect it as well.
Econometer Global Capital head of research Mr Takunda Mugaga said a bond market would not achieve miraculous returns in the current market because “they will be issued against low quality or lazy balance sheets.”
“Even municipal bonds will not have many takers given the confidence deficit at local authorities,” said Mr Mugaga.
FBC Securities investment analyst Mr Albert Norumedzo said though Zimbabwe has not yet fully embraced the bond market, it still remains a crucial way of raising capital for shareholders and other investors.
But, just like any market, its full potential could only be realised if there is enough capital for investors to inject into the market, he said.
“This might fail to take off, not because investors do not like that route but owing to liquidity constraints. All money markets function if there are people willing to invest their monies into them.
“Outside that, it is a very welcome development and investors can diversify into that market and not focus on rights issues only,” he said.
A bond market is a financial market where participants can buy or sell debt securities with the ultimate goal of providing a mechanism for raising long-term funding for both public and private expenditure.
According to a report by South Africa’s largest multi-manager, The Investment Solutions, many African countries debt markets are still in a nascent stage of development and there is significant room for further developments.
“There is need to promote a vibrant secondary market for bonds to create liquidity. Further developments will not only broaden the investor base to include retail investors, but will see the introduction of inflation linked infrastructure bonds to meet different investors’ investment objectives.”
The report further outlines there is increased demand for African bonds and this will result in many bond issuances by both governments and corporates.
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