VFEX migrations opportunity to ZSE mid-tier/low-cap stocks

THE migration of counters from the Zimbabwe Stock Exchange (ZSE) to the Victoria Falls Stock Exchange (VFEX) offers growth opportunities for mid-tier and low-cap stocks on the ZSE, market analysts have observed.

ZSE has been hit by a spate of delistings by top-end counters who are shifting to the fast-expanding US dollar-denominated VFEX.

VFEX has experienced rapid growth in recent months and is attracting migration of big companies.

Several market watchers forecast more listings this year with Innscor, GetBucks, Axia and Seed Co Limited announcing their plans to migrate from ZSE to VFEX.

Last week, hospitality group African Sun Limited announced that its board has approved the migration to VFEX, becoming the first hospitality firm to join the bourse when it eventually lists.

In a presentation delivered during the Confederation of Zimbabwe Industries (CZI) annual economic and business outlook symposium last week, Mr Shelton Sibanda of Imara Asset Management Zimbabwe (IAMZ) noted that due to the recent pricing challenges associated with the ZSE, and intensified dollarisation in the economy, the VFEX has seen an increase in the number of counters and securities migrating to the bourse

The trend has helped increase the pool of assets one can invest in USD and enhance currency diversification. USD reporting will also make analysis easier, experts say.

“These have, however, been largely direct delistings from the ZSE and not new listings per se. We speculate a few other companies will also be migrating to the dollar-denominated bourse during the year. The resultant reduction in the pool of quality ZSE listed counters may result in an increase in activity for mid-tier and low-cap stocks on the ZSE. Excess ZWL will still need a liquid home,” said Mr Sibanda.

ZIMBABWE Stock Exchange (ZSE)

He added that caution has to be taken before a company decides to migrate to the VFEX as liquidity constraints could potentially remain a concern and may result in challenges around valuation, portfolio rebalancing, and restructuring.

VFEX is a subsidiary of the ZSE established to kick start the Offshore Financial Services Centre (OFSC) earmarked for the special economic zone in Victoria Falls.

The US dollar-denominated stock exchange has been offering various incentives that include Government’s increase in the retention ratio for exporters listed on the VFEX to 100 percent, which has been an attractive factor for companies.

Listing on the VFEX also facilitates raising of US dollar capital, which enhances the potential for organic growth and inorganically.

According to the latest monetary policy statement, during the period June 2022 to December 2022, ZSE traded in negative territory. As such, the All Share, Top 10, Top15, Medium and Small Cap Indices declined largely due to low trading associated with the festive season.

The mining index, however, added 27,30 percent to close the month of December 2022 at 25 487,77 points, compared to 20 021,24 points recorded in June 2022.

On a year-on-year basis, the ZSE All Share, Top 10 and Mining Indices added 80,13 percent, 80,74 percent and 226,12 percent, from 10 822,36 points, 6 811,43 points and 7 815,37 points recorded in December 2021, respectively.

On market turnover, the monetary policy statement indicates that during the second half of 2022, trading activity was concentrated in some selected wealth-preserving counters.

“As such, turnover value increased by 84,40 percent to ZW$81,56 billion, despite a 70,71 percent decline in the volume of shares traded, amounting to 1,28 billion shares. This compares to ZW$44,23 billion and 4,37 billion shares recorded in the same period last year,” reads the report.

Owing to the negative trading exhibited on the local bourse, coupled with the de-listing of some counters, the ZSE lost 16,17 percent, or ZW$394,30 billion worth of capitalisation to ZW$2 044,87 billion in December 2022, from ZW$2 439,17 billion in June 2022.

On a year-on-year basis, the ZSE capitalisation added 55,24 percent, from ZW$1 317,21 billion recorded in December 2021.

On the other hand, VFEX market capitalisation increased by 55,48 percent to US$0,42 billion in December 2022, from US$0,27 billion recorded in June 2022.

CONFEDERATION of Zimbabwe Industries (CZI)

In its Equity Strategy 2023 report, IH Securities observed that 2022 was marked by the listing of new counters on the VFEX with a majority of them migrating from the ZSE saying of significance is the appreciation of share price of companies migrating to the VFEX as prices adjust to fair value.

“We are of the view that the exodus of counters from the ZSE to the VFEX will continue in 2023 as companies take advantage of the benefits on the bourse.

“The US$-denominated VFEX was launched with the aim to attract global capital and help companies raise capital in foreign currency,” it added.-chronicle.cl.zw