Zimbabwean capital has been rocked by rafts of legislation and rule changes. While some changes were directly related to the capital markets like the increase of Capital Gains Tax from 2% to 4% (initially announced as 40%) other changes relate to the general monetary environment. All in all the capital markets have not fared well over the last two months. To date, the ZSE has shed close to 40% of its value from its peak as winter has truly set in for investors. While market participants deal with the new terrain the market authorities have not been sleeping on the job. Many developments have happened in those two months and many more are expected before the end of the year. Let’s look at some of these developments and get a sense of what they mean for the market.
ZSE options and futures
Amid the storm, Finsec went ahead and launched derivatives trading on equities in the form of Options and Futures. This development adds risk management and speculative tools to market participants’ arsenals. Contrary to what you may have been told speculators are a part of every healthy market. We have been, with significant assistance from the people at Finsec, testing the derivatives platform on the online platform C Trade. We’re excited about this move because it broadens the opportunities on the ZSE.
2 REITs on the way
Zimbabweans seem very excited about real estate in general and when plans for Real Estate Investment Trusts were announced there was a lot of anticipation. 3 years have gone by with the development of REITs stuck in legislation for some time. Now we have two REITs said to be coming to the market after the long wait. newZwire reports that Terrace Africa will launch a REIT, called Tigere property fund by the end of the year. Terrace Africa is the developer behind Village Walk in Borrowdale and Highland Park has another 16 projects in the pipeline. Meanwhile, CBZ Financial Holding’s asset management arm Datvest is working on launching a REIT according to Economic Times. The fund will focus on commercial and distressed properties and should launch within the year as well.
Victoria Falls Exchange looks to dazzle
The VFEX launched just under a year ago and has been underwhelming at best. Investors are not keen to jump onto the concept of the Offshore Financial Centre just yet. Well, the VFEX team will introduce 3 new features shortly, which they hope will add some appeal to the market.
VFEX mobile trading platform
The Anchor reports that the VFEX will get a mobile trading app by the end of July. One of the challenges on the VFEX has indeed been accessibility though nowhere near the biggest challenge. Skipping the website to go straight for a mobile application is 6 of one and half a dozen of the other. Whilst mobile is preferred web would be a better starting point.
VFEX broker managed accounts
The VFEX has also introduced broker-managed accounts. This is an innovation that simplifies the process of accessing an exchange. The broker manages the account but on behalf of the client. It allows for speed of transacting and easier access for users. This is similar to the way C-Trade operates and judging by Ctrade’s popularity this could be good for the VFEX. The little matter of still having to deal with brokers may temper this popularity though. Nonetheless, the move is certainly positive.
VFEX CFDs
FinX reports that the VFEX will introduce Contracts for Differences (CFDs) to bring more opportunities and excitement to the market. CFDs are instruments that trade on the volatility of underlying assets. An investor buys a contract from a CFD broker that rewards the investor for movement in the price of the underlying asset. Investors need not buy the underlying asset but pay a margin for the contracts which is a fraction of the asset price. So your money can stretch further while you can make money if the asset appreciates or depreciates. If you speculate correctly. You can also make losses either way.
Single stock ETFs
The ZSE also looks to introduce single-stock ETFs which are exactly what they sound like. ETFs are units in a pool of funds, those funds are invested in a basket or portfolio of assets based on the ETFs we currently have. ETFs can also be used to invest small amounts in assets with high unit prices. ZSE counters like National Foods and BAT Zimbabwe come to mind as they demand around ZWL$2000 per share. This makes the illiquid. An ETF that invests solely in NTFD or BAT can allow investors to participate in the gains they make for just $1 per unit. This report also comes from the ZSE winter school coverage by FinX.
Unsponsored depository receipts
Zimbabwean capital markets are no stranger to the idea of depository receipts. Caledonia Mining Corporation is listed on the VFEX through depository receipts in 2021. This instrument allows a company listed on the exchange to trade on another exchange without attaching voting rights. FinX reported that the VFEX plans to roll out unsponsored depository receipts. What separates the sponsored depositary receipt (like Caledonia) from the unsponsored one is that unsponsored ones trade over the counter rather than on the exchange because they can be created without the consent of the underlying company. So investors can take advantage of the US dollar denomination on the VFEX without the company listing on the VFEX.
Exciting times on the markets despite the current conditions that regulation has brought. While investors battle with the environment it is commendable that market authorities are forging ahead with plans to bring Zimbabwean capital markets up to standard.
