Trade on the Zimbabwe Stock Exchange (ZSE) shrunk by 19 percent since December last year, while market capitalisation dropped to US$3.19 billion in June from nearly $4 billion at the beginning of the year.
Monetary policy statistics released by the Reserve Bank of Zimbabwe (RBZ) last week show that foreign investors – whose money Zimbabwe desperately needs to fund economic reconstruction — have taken flight from the local bourse.
“Since February 2010, the stock market has exhibited a downward trend reflecting low investor confidence. Most foreign investors moved out of the stock market largely due to the perceived country risk,” the RBZ said.
It added: “Stock market activity has remained subdued in 2010, largely reflecting liquidity constraints, particularly in the absence of balance of payments and budget support, coupled with subdued export performance.
“Reflecting these, market capitalisation declined from US$3.97 billion in January 2010 to US$3.19 billion in June 2010.
“The industrial index registered a 19.2 percent decline since December 2009 to June 2010, which largely reflects liquidity challenges facing industries.”
The ZSE has also not been spared by the government’s controversial drive to compel foreign-owned businesses to sell stake to local blacks.
Under the economic empowerment law all foreign- owned firms valued at US$500, 000 or more will be required to transfer stake to locals.
President Robert and his ZANU PF party who enacted the law in 2008 before forming a power-sharing government with Prime Minister Morgan Tsvangirai’s MDC had initially wanted foreigners to cede 51 percent shareholding to blacks.
They backed own after stiff opposition from Tsvangirai and agreed to set varying percentages of shareholding foreign-owned companies in various sectors of the economy must transfer to local blacks.
However, ZSE has shown some resilience as the market added US$100 million, with investors positioning themselves for the projected economic recovery.
During the week ending July 30, there was increased activity in both mid-cap and blue-chip stocks, which are most likely to perform from the expected positive economic outturn for the remainder of the year.
Despite the downtrend that was experienced a fortnight ago, the bourse gained for four consecutive trading sessions from Monday with the overall market capitalisation increasing from US$3,5 billion on Monday to US$3,6 billion by Thursday.
Market watchers believe that the recent positive streak, which is taking place in the wake of the Mid-Term Fiscal Policy Review announced on July 14, has been spurred by the better-than-forecast rise in tobacco production and the projected financial injection in the system after the sale of the stockpiled diamonds.
A recent research note from Renaissance Securities indicated that trading on the local bourse would remain largely subdued in the second half of the year.
“While in our view the market remains cheap, there definitely appears to be an apprehensive mood among investors regarding equities.
“There are a number of factors alluding to this: firstly, the liquidity constraints that have dogged the market for the last six months continue unabated, with little in terms of portfolio investment inflows into the country.
“Low disposable incomes in the economy have resulted in low capacity by pension funds to meaningfully harness contributions for onward investment, while at individual levels few individuals have the excess cash to lock up in long-term investment like the stock market.
“While there is no question that the equities are in for a rocky ride for the next six months given the uncertainties, we believe that the present time presents serious value for investors and an opportunity to restructure their portfolio,” read the research note.