“Declines in ZSE-listed equities have seen most pension fund portfolios taking a hit. Alternatives are proving to be an attractive option for pension fund portfolios in advanced markets where allocations are now as high as 20% of fund assets,”
ZIMBABWE’S capital markets confine investors to limited options as chronic challenges buffeting an imploding economy eat into companies’ earnings, a top investment analyst has said.
By Benard Mpofu
The underperformance of the Zimbabwe Stock Exchange (ZSE) and huge voids in the property sector has seen most insurance companies reducing their exposure to traditional assets.
The International Monetary Fund sees the country’s economic outlook deteriorating this year on weakening commodity prices and depreciating regional currencies.
Addressing delegates at the just ended Zimbabwe Association of Pension Funds annual conference in Johannesburg, MMC Capital executive director Itai Chirume said the country should widen its investment portfolio from traditional assets such as cash, fixed income and equities. He said Zimbabwe should instead focus on alternative assets such as hedge funds, real assets, private equity buyouts and venture capital.
Official figures show that the alternative investment industry today has spread globally with more than 10 000 firms managing some US$7 trillion on behalf of investors. The capital is invested across the globe in companies at different stages of development and across different stages of industry sectors.
“Declines in ZSE-listed equities have seen most pension fund portfolios taking a hit. Alternatives are proving to be an attractive option for pension fund portfolios in advanced markets where allocations are now as high as 20% of fund assets,” Chirume said.
“Opportunities abound in the form of undervalued assets, firms requiring recapitalisation, low industrial capacity utilisation, infrastructure deficit and indigenisation policy. There are few active local players, but a number of Africa-focused international Private Equity firms are taking up equity interests in local firms for example Spear Capital’s 27% stake in Dendairy.”
Chirume said the indigenisation law, compelling foreign investors to sell 51% to locals, poses a threat to alternative investments at a time broadening the scope of investments is critical.
“Local market lacks depth and sophistication to capitalise on the many alternative strategic opportunities available. Zimbabwe has no specialist alternatives fund managers as yet, though foreign managers do make forays into the local market. This is limiting the development of alternatives investment vehicles,” he said.
“The other challenge is that we have limited exit avenues especially with a depressed ZSE equities market. However the proposed SME market by the ZSE may improve asset class attraction.”
The underperforming ZSE returned to the green in April, as it rose for the first time since February 2015; total market capitalisation closed 7,91% higher month-on-month at US$3,03 billion. While this came as sweet music to investors who were considering reducing their exposure to the equities market, the slow pace in adressing structural issues besetting the economy could bring back bearish sentiments on the ZSE. Nearly US$2 billion in shareholder value was lost year-on-year in the quarter to March 2016 compared to the same period last year as investors fret over indigenisation regulations.
Last December ZSE chief executive Alban Chirume told businessdigest that the country urgently needs a bond market as an alternative for listed companies seeking debt against a backdrop of an underperforming local bourse that has blighted capital raising initiatives.
The bond market primarily includes government-issued securities and corporate debt securities. It facilitates the transfer of capital from savers to the issuers or organisations requiring capital for government projects, business expansions and ongoing operations. The ZSE executive said trading and issuance of debt securities could stimulate activity for most undercapitalised firms on the ZSE badly in need of fresh funding to retool and become competitive.