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Stockbrokers on stay-away

Thomas Mutswiti

STOCKBROKERS yesterday protested against Finance minister Herbert Murerwa’s latest fiscal policy measures by staying away from the bourse.

Helvetica, sans-serif”>There was no trading on the Zimbabwe Stock Exchange following a major policy shift that requires pension funds to increase government bonds and bills as a proportion of their portfolios, a ZSE official said.

The directive on Tuesday includes a 10% tax on all shares sold on the Zimbabwe Stock Exchange.

In tandem with this policy shift, the industrial index lost its post-holiday exuberance, shedding 0,41% on Tuesday, 6,5% on Wednesday with only 1,3-million shares changing hands. This was a far-cry from daily averages of 20-million shares in the past few weeks.

Yesterday there was no trade in both the morning and afternoon call overs as brokers were just seated chatting away.

Pension funds, the biggest investors on the ZSE, are required to invest 35% of their total assets in government bonds and Treasury bills, but have been calculating that percentage based on book value.

Murerwa said pension funds must calculate these assets based on market value, a move traders said would force companies such as First Mutual and Old Mutual to offload shares to raise money to buy bonds and bills to meet the required percentage.

The bourse has remained one of the few areas notching a positive return on investment in a crumbling economy. Inflation last month raced to 254,8%, the highest in more than a year.

“What will happen is that pension funds will be forced to sell shares to meet the shortfall created by the new requirement, but no one in the market has the capacity to absorb the shares. There has not been any activity today, the afternoon session only lasted five minutes,” ZSE chief executive, Emmanuel Munyukwi, said.

“The market becomes a sellers’ market. It’s a disaster, and there is a very high possibility that the market will collapse. All is not well.”

Rashid Mudala, a fund manager at First Mutual Ltd, agreed. “As they rush to conform with the new requirements, pension funds will have to sell shares to raise the cash.”

Mudala said the directive was most likely to cause a stock market collapse as pension funds dispose of shares in a market with no takers.

Pension funds have until October to meet the new requirements.

There are 79 listed companies on the bourse, including South African insurance firm Old Mutual, Pretoria Portland Cement and tobacco giant BAT.

The ZSE’s market capitalisation stood at $37,6 trillion at the end of July.

Analysts said government was desperate to raise funds to meet commitments after six years of recession. Government is increasingly relying on the domestic market for funds to finance budget shortfalls after a fallout with multilateral lenders over President Mugabe’s controversial land policies.

“The government is trying to extract every last dollar that might be out there, but by so doing it is making people poorer when they retire,” economist John Robertson said.

Analysts predicted an upsurge in black market activities like forex dealing as investors seek alternative avenues to realise real returns.

Government is trying to satisfy its expenditure needs and at the same time violating its social obligations. This development might see pension funds and insurance companies raising premiums, analysts say.

An analyst with an insurance company said the requirement will be taxing on pension funds as it implies that every time properties are revalued they will fall short of the prescribed asset ratios.

The equities market will suffer the most as pension funds will have to liquidate shares to meet these ratios.

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