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A Market Thirsty for New Money

IT is now two months after trading resumed on the stock market and activity still remains largely uninspiring.

The euphoria that characterised the final stages of trading in Zim dollars is gone and is unlikely to come back as long as the greenback is the transacting currency.

There are few US dollars in the country for basic needs let alone investing. Most local investors are liquidating shares to cover daily expenses.

New money is only coming into the market in dribs and drabs, contrary to the earlier notion that foreign investors will flood the exchange with dollars and rand.

To date, only US$5,8 million worth of shares have changed hands. Not all that amount represents new money coming to the market.

A significant part came from Old Mutual switches whereby investors sold their Old Mutual shares with the proceeds used in buying other shares.

Since fungibility had been suspended, until two weeks ago, the Old Mutual shares were sold on the local market at much lower prices than on other exchanges.

Investors, pressed to raise US dollars to meet daily running expenses, ignored the glaring price disparities, selling the Old Mutual shares on the Zimbabwe Stock Exchange for almost half the price on the Johannesburg Securities Exchange.

After the announcement that fungibility had been restored, the share price quickly adjusted to parity levels.

Coincidentally, the value of trades slowly improved after the Reserve Bank allowed local shareholders to uplift their Old Mutual shares for sale in offshore markets.

The actual movement of shares has not officially begun up to now amidst reports that the transfer secretaries have not been told how the process will work. Nonetheless, daily turnover has been improving gradually from the initial amount of US$30.

The daily average turnover since the market dollarised is at US$153 885.  

A record turnover of US$717 000 recorded on April 14 was buttressed by a special bargain of 460 069 Econet shares that changed hands at US$1. 

A number of brokers have confided that their buy orders are steadily increasing while the selling pressure, although prevalent, has subsided.

While it is too early to be more optimistic about the events on the market, the improvement in turnover if it persists, will undoubtedly inspire confidence.      

Under normal circumstances, the average annual turnover for the Zimbabwe Stock Exchange is US$200m on a market capitalisation of US$2,5 billion.

This translates to about US$800 000 a day. Although the current daily average is only US$154 000, it is important to note that it is mainly because of very low values realised in the early days.

In recent days the market has been turning over about US$400 000 a day while the market capitalisation has been gradually increasing from below US$1.4 billion in February to the current US$1,9 billion.

This translates to an annualised turnover to market cap (liquidity) ratio of almost 20% which is much higher than the 10% average during the good old days.

Outside the Johannesburg Securities Exchange, all the other regional bourses are synonymous with low liquidity with Zambia and Malawi going for weeks without recording any trade.

The only exception and possibly a mirror of the ZSE is the Stock Exchange of Mauritius with a nine-year average liquidity ratio of 6,5%.

Last year the turnover to market cap ratio was 10,48%. On the Lusaka Stock exchange, only 3% of the market cap was traded in after improving from 0,66% and 1,55% in 2006 and 2007 correspondingly.

The Nairobi Stock Exchange which is regarded as the powerhouse in East Africa is even worse at 0,27%.
The gradual increase in liquidity is coming at a time the market is debating whether or not there are more than enough stockbroking firms in the country.

There are about 21 stockbroking companies in the country.

Other regional markets, the size of Zimbabwe, have fewer than five stockbrokers which is reasonable given the low liquidity ratios.

Unless the liquidity on the ZSE rises dramatically, a number of these institutions are unlikely to survive until year-end.

The struggle for survival is not limited to them alone but cuts across all the sectors of the economy. The stockbrokers can possibly argue that whatever would sink them would also threaten the existence of many others in the country.

No one is really safe.


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