Fund investors have been pulling out of the risky Zimbabwean stock market at an alarming pace over the last 13 months, against the background of cash and liquidity challenges; weak total demand for goods and services and reduced business confidence.
Other commentators said the ZSE management was also to blame for the southward run, alleging that politics had been allowed to interfere in the running of the bourse.
Last month, the ZSE market capitalisation declined by 2,6%, from $4,01 billion in the previous month to $3,9bn, mirroring the fall in the indices. Total market turnover also fell by 67,1% to $8,553 million, the lowest since September. Analysts said the decline was on the back of low liquidity in the economy and weak investor sentiment.
In addition, analysts said the uncharacteristic demand, which started in October, induced by the introduction of bond notes, had fallen away as the currency had held its value, trading at par with the US dollar.
MMC Capital Research, a stock broking and market research firm, said low foreign investor sentiment was likely to persist.
“We have witnessed a shift of investor appetite on the ZSE since 2015 as more foreign investors are now concentrating on the sale side. Our view is this trend will likely continue into 2017, as economic headwinds continue to mount.”
The MMC Capital report said foreign payments to foreign investors continued to be fraught with problems, due to restrictions imposed by the central bank as it battled a liquidity crisis.
“Despite being ranked in the first category (of the central bank’s offshore payment priority list), the repatriation of equity proceeds, as well as dividends, remains a mammoth task. This will likely weigh down on the upside potential of the market as foreign interest in local equities diminishes.”
MMC Capital said trading activity on the ZSE would probably be depressed this year, given the economic headwinds facing the economy and foreigners were likely to remain net sellers.
“As a result of the liquidity crisis on the local front, foreigners’ participation will continue to be on the selling side, though at a slower pace than prior years, as it seems most of them have sold out by now.”
However, it said local institutional investors would continue to be active on the buy side. These were long-term investors, hence holding equities was desirable to them, given the loss of confidence in other financial assets, such as money markets, due to the unpredictable developments in the financial system.
The report also said buying would probably be centred on companies with strong fundamentals and the capacity to pay dividends. Diverse revenue sources would be a key input in stock screening for investors who chose to invest in local counters.
Foreigners were net sellers throughout last year, reflecting their low appetite for local shares. In the period between January 2016 and January this year, foreigners sold shares worth $145,84m and bought shares worth $61,675m, a $84,165m net outflow.
This was paid out from nostro accounts at a time when banks’ nostro accounts were running dry. In a bid to address the challenges faced by investors over dividend remittances, Reserve Bank governor John Mangudya introduced a $70m exchange/nostro stabilisation facility to be disbursed by the end of February.
This comes at a time the country’s productive sector is in a gridlock due to procurement delays stemming from severely depleted nostro accounts.
But economist Allen Choruma said the ZSE should put its house in order to restore public and investor confidence in the integrity of capital markets in Zimbabwe.
“The image of the ZSE is in tatters and needs urgent mending, as it is clear the bourse does not learn from its previous mistakes and continues with its unprocedural, aggressive and combative approach towards issuers (listed companies).”