SEVERAL Exchange Traded Funds (ETFs) launched in the last couple of years on the Zimbabwe Stock Exchange (ZSE) will now need to be reconfigured to maintain their listing on the back of a massive migration by companies to the Victoria Falls Stock Exchange (VFEX).
An ETF is a basket of securities you buy or sell through a brokerage firm on a stock exchange. Over the years several ETFs listed on the ZSE.
The VFEX however is expected to be a buy-and-hold market which is not good news for stockbrokers at the moment according to Imara Asset Management.
In his January 2023 quarterly edition of the Zimbabwe Investment notes, Imara chief executive officer John Legat said portfolio rebalancing might be problematic for asset managers if liquidity on the VFEX does not
increase.
“The move by listed companies from the ZSE to the VFEX which is wholly United-States-dollar-based and some tax incentives, has gained momentum this past quarter with the announcement that former
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Innscor group of companies will seek to delist from the ZSE and relist on the VFEX in USD.
“From our client’s perspective, assets that were purchased in local currency on the ZSE will now convert to a USD asset. To
realise that asset will require a buyer of their shares for real USD, but the largest investors – given the lack of foreign investors -- are local institutions whose liquidity remains primarily in local currency,” Legat said.
“We suspect therefore that the VFEX will be a buy-and-hold market for the time being which is not good news for the stockbrokers. Asset managers however will be able to charge a proportion of their fees in USD nostro for the first time. Several ETFs launched in the last couple of years on the ZSE would not have anticipated these migrations and they will now need to be reconfigured to maintain their ZSE listing,” he added.
Padenga took advantage of the tax incentives to move in 2021, Simbisa and National Foods moved in December last year while Axia and Innscor will likely join over the coming months.
Legat said the movement of quality counters to the VFEX might increase the market profile and attract investors.
“Time will tell,” he said.
As speculation rises that more counters will join the VFEX this year, Legat said one of the attractions would be the freedom to report in USD thereby removing the headache of local currency accounts and qualification of their annual accounts by their auditors.
He said that was also an attraction for investors since they will be able to value their businesses more easily than under local currency accounts which are meaningless.
However, on the downside, Legat said the VFEX will likely trade far less than the ZSE.
ZSE is an inflation hedge given it trades in local currency and the VFEX will not be, looking at its pricing in USD.