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HOPE for recovery of the Zimbabwe Stock Exchange (ZSE) and equity investment has turned into a nightmare as the volume of trade and share prices continue to shrink following the introduction of indigenisation and empowerment regulations.

Never since dollarisation has the market recorded such a big loss as that suffered in February after the regulations were gazetted by Indigenisation and Empowerment minister Saviour Kasukuwere.
The benchmark industrial index lost 9,8% to close at 140,37 points having opened the month at 155,60 points.
The market went for 10 consecutive trading sessions in the red. The downtrend has continued in March.
According to the ZSE, the value of shares traded in February fell by 7,6% compared to January.
February also recorded the lowest turnover since April 2009 with only US$29 million changing hands on the market.
Previous heavy losses had been suffered in August last year when the market lost 7,7% and October when it shed 5,7%.
The reporting season has however stimulated the ZSE, an indication that the bourse has some value, but is still failing to find direction.
Chengetai Zvobgo, an analyst with Kingdom Bank, said a sectoral analysis shows that the losses were being recorded across all sectors.
“The resultant panic by investors turned the equities market into a sellers’ market as investors began offloading their holdings in anticipation of a fall in share prices as companies rearrange their shareholdings structure,” he said. “The new regulations could have scared away investors as they digest the way forward in light of this development. Business coming from foreign investors averaged 40% last year and contributed 29% in January and below 20% in February.”
The indigenisation regulations, among other things, require businesses to cede a controlling interest of not less than 51% of their shares to “indigenous” Zimbabweans.
From March 1, companies were given 45 days to disclose their shareholdings or indigenisation plan, and they must fully comply with the law within five years.
ZSE chief executive Emmanuel Munyukwi was however diplomatic on the impact of the regulations on the market saying: “They could be, of course, some challenges since the shares are traded on a free-buyer/free-seller basis, but I believe listing could be the best option to meet the desired goals.” 
Munyukwi said most companies on the market were already indigenised “and we are conducting a verification exercise”.
“Listings would help companies to raise working capital. Companies used to borrow money from banks but bank finance remains a challenge,” he said.
Stockbrokers said the political situation in the country had a bearing on the general sustainability of the equities market.
“Politics will continue to play a big role in determining the direction of the market and more progress is still to be seen on that front. Political developments should mirror a country that is ready to do business,” an analyst with ZABG stockbrokers said.
Economist Brains Muchemwa believes that the bearish trend was temporary, and pins his hopes on transparency from both government and private sector.
“The market prices risk, and as such thoughts of doubt and fear can crystallise and solidify into negative perception that may weigh on the market for unnecessarily long periods. Therefore the media, government and private sector have to remain objective, fair and transparent to assist the markets,” he said.
Muchemwa said most of the ZSE-listed companies were compliant with the indigenisation regulations, and “we should expect more unlisted non-compliant entities to approach the market in search of fair valuation for their assets as they gravitate towards compliance with the indigenisation regulations,” Muchemwa added.
For the fairest implementation, Muchemwa said the ZSE offered “the best platform where the private sector will get market value for their assets, while the empowerment will have a greater chance to filter to many disadvantaged people in the streets, unlike compliance via private placements that may result in asset manipulation by greedy and corrupt elements, or outright distortions and deceit by the private sector through phoney schemes”.
According to Lynton-Edwards Stockbrokers, the legislation could not have come at a worse time in the country’s economic reform process.
“The biggest threat facing business is if government decides to disregard the law and simply help itself to cherry-pickings of the Zimbabwean economy,” Lynton-Edwards Stockbrokers said.
It said in the short term the market is expected to trade flat.
“The majority of trade will probably involve strategic moves from counters with small market caps to large blue chips shares as investors seek security in anonymity and large numbers,” the stockbrokers said. “The volume of trade will remain suppressed and liquidity in the market should worsen. It is probably too early to predict whether or not companies will begin selling assets or demerging, but the protection offered by free floating shareholdings (and the legislation’s complete inability to adequately deal with them) will probably prevent this in most counters,” said Lynton-Edwards.
Economist Eric Bloch said the market was expected to trade flat as the legislation was as “unjust and pernicious as was legislation during the abysmal UDI era”. 
“It is as iniquitous and contrary to the best interests of Zimbabwe and its people as was the ill-conceived, counter-effective Land Acquisition Act of two decades ago, devastatingly implemented since the turn of the century. And yet again it is in blatant conflict with the diverse Bilateral Investment Promotion and Protection Agreements,” Bloch said
Bloch said no investors, providers of technology-transfer and of access to their markets, could realistically be expected to subjugate themselves to being junior partners, devoid of authority in the investment ventures.
“With such an expectation in the hands of government, the markedly increased interest in investment that has progressively been developing has now been annihilated,” he said.
Going forward, analysts said investors should brace themselves for further losses as long as the factors highlighted above continue to exist.

Paul Nyakazeya

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