HomeBusiness DigestForced closure pushes ZSE to diversify

Forced closure pushes ZSE to diversify

SHAME MAKOSHORI

ZIMBABWE Stock Exchange (ZSE) bosses scaled up a plan to diversify the bourse after angry authorities directed them to shut down the market in June last year, claiming it had become the greatest threat to the domestic currency, official papers said this week.

Authorities cracked down on the ZSE in June 2020, accusing three dual-traded counters — Seed Co International, PPC and Old Mutual — of amplifying the decimation of the currency, which depreciated by 79% last year.

The ZSE’s benchmark industrial index had rocketed seven times when it was closed, as investors stampeded to buy shares and hedge against rampaging inflation, which was measured at over 750% in June last year.

The market lost ZW$240 billion (about US$3 million at the time) during the five-week hiatus, prejudicing stock market investors including pension funds and insurance companies.

Trading resumed on August 3, 2020 after the government directed the ZSE to de-listed the three and ask them to list on the Victoria Falls Stock Exchange (VFEX), which exclusively trades in foreign currency.

In a commentary to the ZSE’s financial statements for the year ended December 31, 2020, ZSE chief executive Justin Bgoni said the abrupt closure forced them to scout for other income streams.

“2020 marked a turning point for the Zimbabwe Stock Exchange as we began, in earnest, to implement the diversification strategy formulated in the previous year,” the ZSE boss said.

“Given the one month trading suspension we encountered during the year, it became clear the need to develop other non-trading revenue sources for the business. To date, we celebrate the launch of the Training Institute, the Victoria Falls Stock Exchange, ZSE Direct and Zimbabwe Receivables Marketplace.

“We also diversified our product offerings with the launch of the Old Mutual Exchange Traded Fund,” he added.

“As inflation soared in June 2020 the market was closed from 26 June 2020 and was reopened on 3 August 2020. This resulted in the suspension of dual-listed counters namely Old Mutual Plc, PPC Limited and Seed Co International Limited. Fungibility of the shares remains suspended.

“ZSE had a successful engagement with Seed Co International Limited and migrated its listing to Victoria Falls Stock Exchange. Old Mutual Plc and PPC Limited remain suspended and continuous engagement to have them transfer their listing to VFEX is still in progress,” Bgoni said.

In November, the stock exchange community spoke for the first time since the shutdown, questioning the powers behind it and warning the government not to repeat the mistake again.

In a presentation made during a Securities and Exchange Commission of Zimbabwe (SecZim) stakeholder consultative meeting, a group of organisations categorised as clients of SecZim, the capital markets regulator, queried the way authorities cracked down on the ZSE.

They said the government should have investigated first, before shutting down the bourse.

Clients of SecZim include asset management companies, stock broking firms, Custodians, the ZSE, Chengetedzai Depository Company and Finsec among others.

In the presentation, SecZim clients queried the stock markets regulator’s capacity to protect them and called the closure a complete “disorder”.

“Market closure led to lack of confidence. They closed (first) then investigated later,” they said.

“It was better to have investigated first. Closing the market must never happen as it sends a negative message to foreign markets. There were a lot of questions about where that power (to close the ZSE) was derived because it is only SecZim that has the power. The clients (of SecZim) don’t expect that to happen again. Make sure that the markets are not closed in a disorderly manner,” the organisations added.

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