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The development of capital markets in Zim

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Batanai Matsika
Globally, we have witnessed a revolution in terms of the development of capital markets. The internet has also changed how business is being done as IoT (The Internet of Things) and Artificial Intelligence has taken centre stage.

In the same vein, global financial markets have been evolving with new instruments being introduced and traded, from CFDs (Contract for Differences), ETFs (Exchange Traded Funds) to REITs (Real Estate Investment Trusts).

Zimbabwe has also caught up with this trend given that the traditional stock market has shifted from manual to automated systems. For instance, the Zimbabwe Stock Exchange (ZSE) has evolved from an open outcry system to an automated trading system (ATS).

We are witnessing a convergence of technology and finance and this has opened the stock market for anyone who has an internet connection.

Direct market access for investors

In line with the shift to automated trading, the ZSE has launched a Direct Market Access (DMA) facility that permits the trading members of ZSE to provide direct trading terminals to their DMA clients (institutional investors).

DMA is a mechanism whereby Fund Managers and Institutional investors can enter their orders directly into the Automated Trading System (ATS) through a Client Binding Terminal without manual intervention by the Broker.

This new development means a buyer can place their own orders to the buy and sell instantly, and “advertise” the quantity and price of a stock at which they are willing to trade.

 The major advantages of DMA are:

traders have more control and full transparency of their order book;

There is less potential for human error given that the orders to not go through brokers or market makers;

It offers more anonymity — often attractive to institutional traders who would prefer nobody to know what they are buying or selling;

Lower overheads for Brokers since all they are doing is allowing clients to place trades through their computers;

Information leakage is also minimised because the trading is done anonymously; and;

Lower transaction costs because only the technology is being paid for and not the usual order management and oversight responsibilities that come with an order passed to a broker for execution.

The major advantage is that DMA platforms can be integrated with sophisticated algorithmic trading strategies which can streamline the trading process for greater efficiency and cost savings. We therefore expect future developments on capital markets in Zimbabwe to be modelled around DMA platforms.

Retail online share trading

Most readers should have been following how meme stocks such as GameStop and AMC Entertainment have been dominating the US stock markets.

This also demonstrates that the financial markets landscape has completely changed as it has merged with the world of social media and a younger generation of traders who have been empowered by online platforms.

One of the latest developments on Zimbabwe capital markets has been the introduction of C-Trade and ZSE-Direct. These online platforms enable anyone from anywhere to buy and sell shares on the Zimbabwe Stock Exchange (ZSE) and Financial Securities Exchange (FINSEC).

Further, the platforms also give Zimbabweans in the diaspora a chance to invest in shares with enhanced simplicity.  This can be done via USSD, Mobile Apps or Web-based solution.  For example, the C-Trade platform also enables investors interested in rich stock market information, analytics, trends and share price movements to have all this information at their fingertips. All in all, these platforms are in line with global trends as they make use of the internet and cell-phone technology, which in turn opens the markets to retail investors.

Social trading – the latest trend

The development of online trading platforms such as C-Trade and ZSE- Direct has also promoted a collaborative economy given the increased use of social platforms. Social Trading is the latest trend that enables investors and traders to be kept updated on market developments through social trading groups or communities.

These are basically informal groups consisting of individuals who share ideas and news flow about a common interest, which in this case is stock market trading.

In Zimbabwe, online communities such as piggybankadvisor.com have been making use of WhatsApp and Telegram to engage with investors and traders.

piggybankadvisor.com is a fast-growing online community of trading and investing enthusiasts that makes use of digital platforms to increase the participation of individuals, households, and businesses in local and global investment markets. It is also a powerful educational platform that empowers users through educational and insightful articles and blogs.  This is in line with global trends.

For example, Twitter is currently revolutionising agriculture markets in the US. Commodities brokers and traders are paying close attention to tweets as they can now gather real-time updates on planting intentions and yields and tracking a multitude of trends such as weather and flu outbreaks.

Twitter also allows traders to follow news outlets and research groups, giving them tips and recommendations that can influence their trading decisions.

Overall, social media platforms and online communities remain an important source of news for investors and traders despite the risks associated with “fake news”.

Enter the Exchange Traded Fund

The latest development on the local capital markets has been the launch of the ZSE Top Ten Index Exchange Traded Fund (ETF).

It should be highlighted that ETFs possess characteristics of a Unit Trust but are also different.

An ETF is a basket of securities that trade on an exchange, just like a stock. This means ETF prices fluctuate all day as the ETF is bought and sold. This is different from unit trusts that only trade once a day after the market closes.

The major advantage of an Index tracking ETF like the Old Mutual Top 10 ETF is that it replicates the makeup of an index and therefore gives the investor a performance that mirrors the underlying index. In addition, the ETF is a cheaper way of getting access to a wide array of stocks.

So, are we there yet?

While we have witnessed a rapid advancement in terms of trading platforms and new products, there is still room for further development.

For example, there is need to deepen the capital markets through the introduction ETFs that provide exposure to global stocks, commodities such as gold and platinum as well as different investment themes and special situations. Further, there is need to develop a robust derivatives market since it is critical for hedging purposes.

Overall, the local capital markets are evolving and we should expect to catch with other more developed markets. For example, new technologies that have been disrupting global financial markets relate to algorithmic trading.

The increased demand for speedy, reliable, and effective order execution as well as reduced transaction fees is expected to fuel the global growth of automated or algorithmic trading.

This involves the use of a computer programme, robot or software to create orders and automatically submit them to a market or exchange.

That said, the introduction of the ATS and DMA facility as well as online trading platforms in Zimbabwe should position the market to move to the next step of engaging the ROBOTS.

Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. —  +263 78 358 4745 or batanai@morganzim.com/batanai@piggybankadvisor.com.