The Sunday Mail
◆ CSD to be linked to RBZ ◆ Innovations to further attract investment
Darlington Musarurwa and Munyaradzi Mlambo
THE Zimbabwe Stock Exchange shed more than US$896 million in value since automation on July 6, 2015, and now authorities are pushing through plans for further innovations to make local capital markets efficient and accessible to investors.
| Although Zimbabwe has one of the oldest stock exchanges in Africa – first established in Bulawayo in 1896 – trading had predominantly been conducted through an outdated call-over system and backed by paper-based registration of share ownership. |
However, last year’s automation linked computerised trading of stocks with a computer-based central securities depository (CSD).
The CSD operates an electronic book entry system. It maintains securities, which are kept in electronic form in the investor’s account, and registers their transfer.
The CSD had went live on September 8, 2014.
Modernising the bourse was envisaged to drive trading volumes through attracting more investors.
The Sunday Mail Business established last week that linking the CSD and the Reserve Bank of Zimbabwe was at an advanced stage.
Linking platforms of the two key entities is expected to improve efficiencies in funds settlement by making it easier to move monehy between buyers and sellers.
It is also expected to lower costs for investors.
Bloodletting
Notwithstanding efforts to make the stock exchange more accessible to investors, losses have continued to stalk the market.
In the six-month trading period after July 6, 2015 – when the automated trading system (ATS) went live – the ZSE lost more than US$730 million. Another US$165 million in value was shed in the half-year between December 30, 1015 and June 30, 2016.
Overall, the market has plunged close to US$900 million in the 12 months since July 6 last year.
As a resource-dependent economy, Zimbabwe has been adversely affected by weak commodity prices on international markets.
Equally, inherent economic structural weaknesses, which have resulted in declining revenues for Treasury and poor companies’ performance, have in turn affected investor appetite for stocks.
Mr Campbell Musiwa, the CEO of Chengetedzai Depository Company (CDC), a private firm that won the right to establish the CSD in December 2010, said continued declines in trading volumes were not related to automation of the ZSE.
“The performance of the stock market is largely been driven by the economic fundamentals which have been deteriorating in the period under review. The automation of the market has improved efficiencies and introduced international best practice.
“The rating of the CSD by Thomas Murray Data Services also provides an independent source of information on post trade services in the Zimbabwean market to foreign investors. All this has opened up the market to investors who were prohibited from participating in our capital market before automation.
“The country’s economic challenges have to be addressed in order to attract international investors and benefit from the world class financial market infrastructures that the country has put in place,” said Mr Musiwa.
London-based Thomas Murray Data Services provides global capital market infrastructure data, post-trade risk ratings and analytics to banks, funds and capital markets.
ZSE boss Mr Alban Chirume also believes that a negative cycle of weak economic fundamentals, perceived high country risk, poor company earnings and, by extension, declining company valuations, have seriously affected trading.
“The perceived high country risk by foreign investors continues to have an effect on order size and numbers, based on the recent participation levels as well as policy pronouncements on the intention to introduce bond notes seems to also have affected (negatively) investor sentiment . . .
“Automation increases volumes due to longer trading hours, increased transparency and market confidence. ZSE has control over trading hours and transparency by virtue of ensuring that the system is functioning at its optimal level,” said Mr Chirume.
Since more than 60 percent of trading on the stock exchange is driven by foreign investors, the ZSE has as a result been vulnerable to the recent trend where investors exit emerging markets in favour of traditional investment portfolios.
The rising US dollar and improving gold prices have proved to be a safe bet for risk-averse investors.
But the continued decline of South Africa’s rand against the United States dollar, which has become Zimbabwe’s main unit of exchange, has also played a part in affecting local industry.
This has aggregately affected the ZSE’s appeal as an ideal investment avenue.
Innovations
The Securities and Exchange Commission of Zimbabwe has guided many far-reaching innovations to local capital markets in order to make them more efficient.
For example, the CSD has a triple A rated system with “reliable user reference” that ensures stability and guard against intrusion.
Although the settlement cycle of trades after the trading date – meaning the number of days it takes to complete a transaction – is still five days (T+5), plans
are underway to reduce the days further to three (T+3).
Chengetedzai Depository Company said last week market participants were still familiarising with the system before the new plans set in.
“It was necessary to allow sufficient participants time to familiarise with the CSD System and their roles and responsibilities within the new automated environment before introducing further changes. This is an overall market initiative and CDC has already opened discussions with market participants towards the realisation of this objective.
“Stakeholder engagement is necessary to ensure all market participants are prepared for this major change and in ensuring that there is buy-in from the market players,” said CDC.
New tools
But there is also scope for internet and mobile-based platforms to facilitate trade and ensure that the market interfaces with ordinary individual investors.
The proliferation of mobile phones and internet-based mobile phone applications is gradually providing opportunities for additional innovations.
Recent statistics from the Postal Telecommunications Regulatory Authority of Zimbabwe show that the country’s mobile penetration rate rose to 92,8 percent in the third quarter of 2015.
The Internet penetration rate also rose to 48,1 percent as well.
The ZSE said it is exploring the possibility of rolling out View Only Terminals through which investors are able to observe activities on the market on a real time basis.
Added Mr Chirume: “Due to this factor, there is an opportunity for increase in participation of local investors through such platforms. ZSE will explore avenues to work with mobile money platform operators to enable local retail investors to participate in the bond market through use of their mobile phones.”
In other jurisdictions, it is possible to trade in stocks online.
Traditionally, the stock exchange has been used by companies to raise funds from the market, while also affording individual and institutional investors the opportunity to invest their money.
The ZSE is exploring synergies with the State and RBZ to create an active market for Government and corporate bonds.
The exchange is also working with the regulator, SECZ, to establish a second-tier market for SMEs.
Stakeholders have been trying to heighten activity on the ZSE as a deliberate move to attract more capital onto the local market.
In February, the Reserve Bank of Zimbabwe increased the threshold of foreign investors overall ownership on the ZSE to 49 percent from 40 percent, while the single investor limit was reviewed to 15 percent from 10 percent.
But trading has been confined to a few seemingly elite local investors and foreign investors.
It is believed that there can be more local investors if the market is made knowledgeable of how it operates through deliberate and targeted campaigns.
Most importantly, new international and mobile-based applications are thought to be handy tools of creating a direct interface with the market.
