Retail investor frenzy likely to continue

07 Jan, 2022 - 00:01 0 Views
Retail investor frenzy likely to continue

eBusiness Weekly

Kudzanai Sharara-Taking Stock

Although positive stock market returns are not guaranteed, the phenomenal gains recorded on the Zimbabwe Stock Exchange in the last two years are motivational enough to keep retail investors interested in participating in the equities market.  

The benchmark All Share Index gained over 310,51 percent in 2021 alone, after hitting multiple record highs.  The Small Cap Index, most favoured by retail investors was even better, gaining 3 280,50 percent during the year under review. The gains are ahead of inflation which closed the year 2021 at 60,7 percent.

The massive rally in markets always tends to attract many investors to equity markets. Such performance, which has consistently beat other traditional assets such as property and money market instruments, means the rise of retail investors will continue to sustain in 2022 as it did in 2021.

 On ZSE Direct (an online trading platform run by the ZSE) the growth in retail investor participation on the stock market has been phenomenal.  The platform, which was launched in September 2021 and closed the same year with 3 149 total users, has since grown to 9 121 total users.

Active users at 939 for the four months to December 2020, closed 2021 much higher at 4 737 reflecting the growing interest from retail investors. The growth in active users was also reflected in the growth in the number of trades from 1 766 for the four months to December 2020 to 31,142 for the year to December 2021.

The total value of trades, which was at $14,3 million in the four months to December 2020, ballooned to $248,4 million in the 12 months to December 2021. The introduction of easy-to-use trading tech platforms such as ZSE Direct and C-Trade has also added to the attractiveness of equities as an asset class.

 Interestingly, the rise of retail investors in the past two years is also a global phenomenon with retail investors entering the markets, wanting to take control of their own finances.

Policy changes like easier know-your-customer (KYC) norms, greater internet penetration, and affordable devices and technology-enabled easy access to services and increased the financialisation of savings.

Factors such as digitization, growing awareness about equities will push more people towards the capital markets.

The only worry is that most retail investors are entering the market at a time it has been mostly bullish and have not experienced market corrections and bearish trends.  If markets are to correct and remain bearish for a long period of time, some of these new retail investors could get frustrated and opt-out of the markets, hopefully temporarily.  Ideally, investors should use the corrective phase to invest money in equities rather than panic and exit.

It’s also high time they move away from only investing in penny stocks and start allocating some money to well-performing quality large-cap companies. Hope is that increased participation of retail investors will compensate foreign investors that are continuously exiting the local bourse.

Foreign institutional investors have been consistently dumping ZSE shares for the past few years amid concerns over failure to repatriate dividends, capital gains, or even to recoup initial investments. Listed companies such as Delta (US$104 million) and BAT Zimbabwe (US$16 million) have failed to repatriate dividends to foreign investors for more than 5 years.

In 2021, foreign investors sold shares valued at $958 million and only bought shares worth $137 million meaning they were net sellers by as much as $821 million.

However, post the blocked funds deadline of February 2019, companies have been able to repatriate disinvestments, dividends and capital gains via the auction system.

But probably a little too late to convince foreign investors to change their minds.

 As for the market, hope is that the retail frenzy that has characterised the last two years will continue growing and counterbalance the loss of foreign investors.

Growth in retail participation will also result in the deepening of the markets and diversification of the sources of funds for the markets. The dependence on foreign or local institutional flows will also reduce.

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