Taking Stock Kudzanai Sharara
It’s not a surprise that activity on the Zimbabwe Stock Exchange for 2018 was largely higher than what has been experienced over the years. To put it into context, activity on the bourse is largely mirroring the excess liquidity in the country’s banking system where $10 billion lie in deposits.
There have also been distortions in currency values with bank balances being discounted for real US dollars. This has seen investors seek protection in real assets such as stocks.
On average, ZSE monthly turnover figures in 2018 were higher than those recorded since 2014 in at least six months.
It terms of prices, the ZSE’s Industrials Index closed the year having gained 46,28 percent while the other three indices were within that same range. There were only 11 fallers by the close of the year, a clear indication on were prices were heading during the course of the year. But it was not as clear as this from the start of the year. Stocks actually started on a downward trend till March.
With President Mnangagwa championing the “Zimbabwe is Open for Business” mantra, there was glimmer of hope that the stock market would rally on the back of positive economic fundamentals. There was some sense of caution though and stocks could only manage single digit gains by June.
Between July and September, gains reached double digits, but this time not because of positive fundamentals, but a crisis of confidence following disputed elections.
Then came the tax and separation of accounts we talked about earlier, and the reaction was a spike to safety. The ZSE main Industrials Index reached an all-time high on October 22 with a year-to-date gain of 83 percent.
Don’t let the graph fool you. From the graph on foreign investor participation you would think foreign investors were actively involved, even becoming net buyers for most part of the year. But Stockbrokers tell a different story, that these are just portfolio changes and no new money is coming. There was a spike in foreign sales in October, but mostly because foreign investors thought they could finally repatriate their money, long locked in the country. It was not to be and the graph is revealing.
Staying with activity on the local bourse, turnover reached an all-time high of $926,3 million, very close to a billions. Before this, the all-time high was in 2017, where again the reason had nothing to do with how listed companies were performing, but with what was considered a safe haven for depreciating monetary values.
As expected, October, November and December, in that order, had the highest turnovers of $161,2 million, $118 million and $92,9 million respectively.
But what happened in the last quarter to warrant such a flight to safety. There was a new Sherriff in town, then newly appointed Finance and Economic Development Minister Mthuli Ncube. Alongside RBZ governor John Mangudya, Minister Ncube announced two measures that till now, the market is still struggling to deal with.
The market is even confused which one of the two measures, the 2 percent tax or the separation of bank accounts had the most damaging impact to business, consumers and the economy at large.
Not in the know, here is what the two measures were all about:
In announcing the 2 cents tax, Minister Ncube directed financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic financial transactions effective October 1, 2018, even before the SI has been gazetted.
The tax was later amended to say transactions below $10 will not attract the tax, while all transactions above $10, up to $500 000, will have to comply with the new tax regime. Further, all transactions above $500 000 will attract a flat tax of $10 000.
Prior to the amendments, all transactions were paying a 5 cent tax. The tax will also not apply to eight other types of transactions.
On the separation of accounts, banks were ordered to create separate nostro (external bank) foreign currency accounts (FCAs) and real time gross settlement (RTGS) FCA accounts, as part of measures to preserve value for foreign currency earners and to boost market confidence.
The rest as they say is history, but what is for sure is that the markets were spooked as indicated around the month of October on all our charts.