Brighter prospects for new ZSE listings

Prospects of new listings on the Zimbabwe Stock Exchange (ZSE) are now brighter because of the stable economic environment currently obtaining after interventions by Treasury and monetary authorities.

The introduction of the foreign currency auction system by the Reserve Bank of Zimbabwe (RBZ) on June 23 last year helped bring stability by improving access to foreign currency and reining in exchange rate volatility.

ZSE chief executive officer Mr Justin Bgoni told a Zimbabwe Finance Conference hosted by our sister publication Business Weekly and London-based Financial Markets Indaba that the environment was now showing significant improvement, and was conducive for more companies to list on the local bourse.

“The ZSE believes there are still a lot of companies that can list on the bourse; the climate is now getting better.

“Currently, the interest rates are higher at around 3 percent to 5 percent compared to monthly inflation which is around 1 to 2 percent. There is a real cost to borrowing money, therefore listing is becoming more attractive now,” said Mr Bgoni.

“The auction system has also brought currency stability as well as increased businesses’ access to foreign currency on the formal market as opposed to the parallel black market that sells at a premium.”

In their trading update for the third quarter to March 31, 2021, National Foods Holdings Limited acknowledged the auction system had improved access to foreign currency compared to a year earlier before the introduction of the auction system.

Mr Bgoni added: “The currency is now stabilising; companies can now get foreign currency on the auction. Therefore, listing is now becoming an option and companies now need to re-look at their capital structure since borrowing is no longer the cheapest way.”

Meanwhile, there has been a significant increase in participation by retail investors on the stock exchange, whose contribution to liquidity and resilience is considered important.

Exchanges such as the Stock Exchange of Thailand as well as Egyptian and Moscow exchanges have been pushing for retail investors on their bourses over the years.

“Over the past months, we have noticed a significant growth in retail participation in terms of number, value and volume of trades,” said Mr Bgoni.

The growth in retail investors also came following the launch of ZSE Direct — an online platform — in September last year.

Figures show a significant increase in number of trades on the ZSE as well as value and volume traded direct between September 2020 and March 2021, which recorded the highest trades.

Number of trades were at 139 during launch month and ballooned to 3 000 in March this year. The increased retail participation has also spurred the Small Cap Index, making it the biggest year-to-date gainer at 260 percent.

“The Small Cap (Index) has done very well so far and we believe it is because of the retail investors as they find these stocks more affordable.”

ZSE, Mr Bgoni said, will continue looking at measures that help increase retail participation as well as demystify the exchange as elitist, which has contributed to low financial inclusion in capital markets.

Currently, delays in opening a CSD account, which is taking about two to three weeks, as well as the settlement time are among the key challenges that deter retail participation.

However, various measures are being put in place to address the challenges and make the bourse the preferred investment destination.-sundaymail.co.zw