THE Zimbabwe Stock Exchange (ZSE) and Victoria Falls Stock Exchange (VFEX) faced challenging conditions in November, marked by significant slowdowns in trading activity, liquidity constraints, and profit-taking sell-offs.
Despite these setbacks, the outlook for Zimbabwe's stock and capital markets holds several potential opportunities, driven by both structural adjustments and external economic factors.
The ZSE recorded one of its poorest monthly performances last month, with activity slowing due to various factors, including liquidity constraints, profit-taking-induced sell-offs, and portfolio liquidations ahead of the festive season.
The aggregate turnover for the month registered a sharp decline of 43%, dropping from ZiG502,84 million in October to ZiG287,11 million in November.
However, the number of trades remained relatively stable, reflecting continued appetite for stocks despite the liquidity challenges that weighed on volumes and values.
In United States dollar (USD) terms, the turnover for November stood at US$11,015 million, 41% lower than October's US$18,81 million.
This decline underscores the liquidity issues affecting the market, exacerbated by the disparities in the exchange rate.
The ZSE’s market capitalisation also saw a 10% decrease from ZiG84,77 billion to ZiG76,62 billion. However, in USD terms, market capitalisation grew by 2%, from US$2,96 billion to US$3,01 billion, reflecting the exchange rate fluctuations and a more favourable performance in real terms.
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Despite the overall slowdown, exchange rate movements in November positively impacted foreign trades on the ZSE.
The appreciation of Zimbabwe gold (ZiG) against the USD on the official market and prolonged stability on the parallel market boosted foreign investor sentiment.
Aggregate foreign inflows surged by 171% to ZiG46,6 million, the highest since the introduction of ZiG in April, while foreign outflows decreased by 62% to ZiG57,84 million.
This improvement in foreign participation highlights the potential for increased foreign investment given a stable exchange rate environment.
The VFEX, denominated in USD, also experienced challenges similar to the ZSE. Liquidity constraints and profit-taking sell-offs continued to weigh on share prices, preventing the market from recovering prior losses.
The VFEX All Share Index declined by 0,5%, and market capitalisation fell from US$1,24 billion in October to US$1,23 billion in November, marking a six-month low.
Trading activity on the VFEX also declined, with a 6,8% decrease in aggregate turnover to US$3,50 million and a 1,2% drop in total volumes traded, indicating reduced market demand.
Looking ahead, the future prospects for Zimbabwe's stock and capital markets hinge on several key factors. A stable and predictable exchange rate will be crucial for attracting and retaining foreign investment.
The recent stabilisation of the ZiG against the USD has already shown positive effects on foreign investor sentiment, and maintaining this stability will be vital.
Moreover, addressing liquidity constraints through monetary and fiscal policies can help stimulate market activity.
Enhancing liquidity in the financial system, possibly through central bank interventions or the introduction of financial instruments that increase market depth, could boost trading volumes and investor confidence.
VFEX is expected to see the launch of a trading hub focused on commodities exchange anytime soon, and this is one of key instruments that could push liquidity on the market.
The development and promotion of the VFEX as a USD-denominated exchange offer significant opportunities for Zimbabwe.
By providing a platform for companies to raise capital in a stable currency, the VFEX can attract listings from both local and regional firms seeking to mitigate currency risk.
Additionally, the VFEX can serve as a gateway for foreign investors looking for exposure to Zimbabwe's growth potential without the currency volatility associated with the ZSE.
The government and regulatory bodies should also consider policies that encourage long-term investment. Offering tax incentives for long-term investors, further reducing capital gains taxes amid high volatility, and providing favourable conditions for institutional investors can promote more sustainable investment practices.
These measures can reduce the prevalence of short-term speculative trading, which often leads to market volatility.
Lastly, fostering regional integration and collaboration with other African stock exchanges can provide additional growth opportunities.
By aligning regulatory standards and facilitating cross-border listings and investments, Zimbabwe's capital markets can benefit from increased liquidity and broader investor participation.
In conclusion, while Zimbabwe's stock and capital markets faced significant challenges in November 2024, there are several strategies that can enhance their future prospects.
Maintaining exchange rate stability, addressing liquidity constraints, and implementing structural reforms are critical for creating a conducive environment for investment.
Promoting the VFEX as a USD-denominated exchange, investing in financial education, encouraging long-term investment, enhancing market infrastructure, and fostering regional integration can collectively drive the growth and development of Zimbabwe's capital markets.
By adopting these measures, Zimbabwe can build a resilient and dynamic capital market that supports economic growth and attracts both domestic and international investors.
l The official exchange as at Wednesday was US$1:ZiG25,56.
Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, X: TWDuma_
