HomeBusiness DigestPolitical sneeze Gives ZSE the Cold

New measures to ease liquidity crunch

WHEN politicians sneeze, the Zimbabwe Stock Exchange (ZSE) catches a cold.

The year 2009 will be remembered as a season that market forces, driving the local bourse, were delicately responsive to the politics of the day.

For the first time in many years, the ZSE reacted directly to political undertones and manoeuvres.

The global political agreement that gave birth to the inclusive government between President Robert Mugabe, Prime Minister Morgan Tsvangirai and Deputy Prime Minister Arthur Mutambara suddenly became the compass for the stock market.

The formation of the coalition administration and subsequent resumption of trade at the stock exchange on February 19 brought high hopes to Zimbabwe’s once moribund command-type economy.

Despite the clear appetite to pocket the greenback since the Zimbabwe dollar became redundant, market punters exercised extreme caution after Finance minister Tendai Biti rang the bell to signal the first trade of the year.

Only 3 026 Apex shares worth a dime went through. Optimists on one hand felt that the lifting of the Reserve Bank-ordered three-month suspension was a resurrection of a once revered giant, the second most active stock market in the region after the Johannesburg Stock Exchange. Prices opened depressed, with noticeable absence of buyers as most counters had sellers only on a ticker.

So high were the expectations that market watchers such as Rennaisance Capital at one time made Utopian projections of a 500% growth  of the bourse by year-end. Reality dawned last week when the liquidity-strapped ZSE registered only 200% growth from the $1,6 billion market capitalisation at the start of the year.

The passing year also came with a new phenomenon developing on the ZSE. As appetite for the African markets grew in the aftermath of the global financial recession, Eastern European investors took a keen interest on the relatively cheap ZSE stocks.

Buoyancy on the market continued to the extent that some analysts expected the trend to be a happily-ever-after tale. Between February and June, the stock exchange grew from 53, 8 points to 154 points before it began to run out of steam, receding to 146,59 points in July.

Coincidentally this occurred a month before the slated and postponed review of the inclusive government pact. After painting a gloomy picture of the government, Tsvangirai began to open up on the tensions within the coalition government.

This recession continued in the following month as there was nothing new on offer.

In September, the market surged to 158,07% as investors anticipated good news from companies which were due to release results for the period ending September.

Apart from the politics, the continued dreary results which were released by the companies continued to pull the market down and investors started looking for alternative destinations for their funds.

On the downside, the October “partial disengagement” by the Tsvangirai-led MDC sent shivers down the bourse. The shattering effect of the disengagement saw the ZSE benchmark industrial index tumbling a massive 15% in a week, enough to scare away investors. The mining index also fell 22,2% during the same period and the overall market cap fall 11% to US$4 billion.

The introduction of Grain Marketing Board Bills in October following sharp criticism on Biti’s policies also slowed down activily on the ZSE.

Political undertones by President Mugabe to reintroduce the worthless local unit “in protection of our national sovereignty” were first dismissed as a mere bagatelle or at least a subject for debate among economists, but when central bank governor Gideon Gono told a parliamentary portfolio committee that government had serious plans to bring back the Zimbabwe dollar, the market panicked and retreated.

Biti threatened to throw in the towel, clearly demonstrating the discord in government. The finance leader reportedly threatened to resign if the policy change was made within 12 months.  The debate was temporarily put on hold during the 2010 budget when the Finance minister downplayed the issue but hinted that the discourse would resume in the coming year.

Most analysts argue that the use of the US dollar had stabilised the economy and reduced the country’s risk in the eyes of international investors .

Has the bourse transformed from what one academic termed a phony market to a real market-responsive bourse? An analyst with a stock broking firm said the ZSE was supposed to respond to monetary and fiscal policies as well as political actions because it had become a real stock exchange.

“This is the norm and we are not surprised,” said the analyst who asked for anonymity. “In fact we anticipate this to happen because we are now a real economy not what we were doing in the past. This is also happening for the simple reason that the stock exchange is dominated by foreign buyers, accounting for close to 90% of the trade, thus they are very cautious.”

For many, 2010 would be a year company chiefs will have to demonstrate their business acumen. Failure to declare dividends by the bulk of listed concerns, save for only three, will put company executives on the spotlight. Or will the yet-to-be-implemented issues to the GPA leave investors more and more cautious?

 

Bernard Mpofu/Leonard Makombe

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