The Investment Professionals Association of Zimbabwe (IPAZ) is a professional body made up of Chartered Financial Analysts (CFA) Charter holders and Members of the CFA Institute domiciled in Zimbabwe and in the diaspora. As CFA Charter holders, IPAZ is duty bound to protect the integrity of the capital markets and advocate for the protection of investors interests in Zimbabwe. It is with that in mind that we find Government’s action in closing the Zimbabwe Stock Exchange and the suspension of Old Mutual Limited, Pretoria Portland Cement (PPC) and Seed-co International Limited to be not in the best interest of investors and the integrity of the markets and the country at large.
Following a Government directive, the Zimbabwe Stock Exchange (ZSE) suspended all trades on the 26th of June 2020. According to the Government statement, the closure of the ZSE was meant to stop the slide of the local currency (ZWL$) on the unofficial markets, alleging that the ZSE along with Ecocash (mobile payment platform) were collaborating to sabotage the country by causing the collapse of the ZWL$. At the core of Government’s argument is the Old Mutual Implied Rate (OMIR) which is a rate implied by market participants when they trade in Old Mutual Limited shares listed on the ZSE.
A look at the history of the ZSE and the role any stock exchanges plays in the growth of an economy and empowerment of entrepreneurs and ordinary investors, suggests that such a move would have more long-term negative effects on the country than what the authorities seek to correct. We advocate that alternative solutions be found instead to address the underlying causes of the currency weakness than attacking financial markets which are simply transmission mechanisms that reflect the underlying views of the various market players. If anything, the message carried by these markets, can prove a very useful source of information for policy-makers.
The ZSE’s History
The ZSE traces its history to the 1890s with the establishment of S Hyman’s brokerage in 1891 to enable the trading of shares on the JSE and LSE1. In 1894 the Salisbury Stock Exchange was established with 33 members and 18 quotations one of which was the BSAC1. Another exchange was later established in Bulawayo and 2 more in Gweru and Mutare followed. The exchange had the following purpose back then;
- To provide capital to the rapidly expanding gold industry.
- Put business on a sounder footing in the colony.
- Formalise the way pioneer communities conducted their business affairs.
- To raise the estimation of the colony in the eyes of foreign investors.
The purpose of the Stock Exchange
- A means by which a country’s capital (from savers) are channelled to investors such that the most promising investment opportunities will receive the lion’s share of the economy’s savings. In so doing, the market provides a most efficient and effective way of capital allocation.
- Capital raising for corporates (bonds & equity), govts (bonds), municipalities (bonds).
- Enables a country to attract foreign capital in the form of foreign investors in the co