The Zimbabwe Stock Exchange was booming last year, but the inflow of capital from overseas seems to be drying up.
In February last year, fund manager Alan Mutasa was swamped by requests from foreign investors taking bets on what was then one of the world’s best performing stock markets.
The Zimbabwe Stock Exchange (ZSE) was steaming ahead and, having risen by 20.3% in the previous month alone, it had been the best-performing market in Africa, giving investors returns not seen anywhere else on the planet at the time.
Investors were looking “past all the negativity”, he had told the Mail & Guardian in an interview, referring to damaging headlines at the time, quoting then finance minister Tendai Biti as saying the country only had $217 to its name.
Foreign investors were rushing in to buy shares on the stock exchange, attracted by cheap stocks and how big and quick the returns were on this most unlikely of emerging markets.
But now the flood of foreign money has begun to thin and the likes of Mutasa are finding it hard to get local investors to fill the gap.
“Between June last year and March , about a billion dollars was wiped off the market’s value,” says Mutasa. “Foreign investors are still active, but not at the rate we were seeing this time last year.”
In foreign hands
Although the government has been campaigning for more local participation in the economy, even proposing a blacks-only exchange, the ZSE remains largely in foreign hands as a worsening liquidity shortage shuts locals out of the $4.8-billion stock market.
Zanu-PF, in its election manifesto, had promised to set up a new exchange “for exclusive participation by indigenous individuals”.
The exchange, which would be called the IndigeNex, would provide an alternative to the ZSE for less cash-rich locals. But as foreign money into the stock market tapers off, locals remain on the margins.
A combination of a slowing global market and the uncertainty in Zimbabwe over economic policy has seen the foreign investors that rushed into the ZSE last year selling off some of their shares.
But locals can only stand by and watch as foreign investors still take up most of the business on the exchange.
Despite growing worries over the economy, foreign money is still the ZSE mainstay. But this is more to do with the fact that locals are unable to raise cash to compete with foreign investors on the exchange.
“There just isn’t enough access for locals to participate in any significant way on the ZSE,” says analyst Bernard Ndebele. “The stock market is about volumes, and not many local investors have the kind of money to compete with foreign capital.”
Foreign cash accounts for 60% of trades on the stock market, and the figure has reached 80% as locals struggle to raise money from the local market to make any significant plays on the exchange.
“It is hard to imagine what would happen if there was a sudden movement of foreign money out of the market,” a stockbroker said this week.
Foreign investors bought just over 340-million shares in the first quarter of 2014, up from 270-million over the same period in 2013.
In the first quarter of 2014, the stock market has lost 3% of its value. Mutasa’s own portfolio of investments – which includes mines and the consumer stocks that had held so much promise – has fared worse; it is down by almost 5%.
“If you look at financial results from 2010 and 2011, consumer companies were not faring too badly,” Mutasa says. “Spending was growing. But the past six months have seen a sharp fall in consumer demand, which you can tell by the deflation.”
The stock market had ended 2013 on the up, despite uncertainty in the aftermath of the July 31 elections.
By December 2013, the ZSE’s main index was up by 40%, almost double the growth of the JSE’s all share index, which rose only 21.4%.
By November last year, the ZSE had risen over 240% since the country adopted the US dollar as its main currency in 2009.
State of the economy
According to a World Bank report released this month on the state of Zimbabwe’s economy, the fall in share prices is “possibly reflecting both the recent tapering off of the United States Federal Reserve Bank’s monetary policy stance and the slowdown of the Zimbabwean economy”.
The World Bank expects the economy to grow by only 3% this year, half of what Finance Minister Patrick Chinamasa expects.
The government is feeling the slowdown of foreign money coming into Zimbabwe, and has begun to soften some of its rhetoric to reassure investors.
This week, Chinamasa said Zimbabwe was looking for partnerships – and not confrontation –with wealthy economies.
“We are too small a country to pursue a policy of confrontation,” Chinamasa said at a conference.
An extended losing streak in March made the Zimbabwe exchange the worst-performing among 13 sub-Saharan African bourses monitored by Bloomberg.