The Zimbabwe Stock Exchange will finally return to action on Monday 3rd August after it was shut down to investigate the connection of some counters to the parallel market exchange rates which has been a thorn in the government’s paw for nearly 5 years now. Meanwhile, the official auction-rate crept again moving the same amount it did in nominal terms and sliding 6% in a week.

ZSE back in action

In a press statement from Finance and Economic Development Minister Professor Mthuli Ncube that was released yesterday, it was revealed that the Financial Intelligence Unit had concluded their investigations and unsurprisingly found no wrongdoing on the part of the fungible counters namely Old Mutual,  PPC and SeedCo. The statement, however, indicated that there would be ongoing investigations of brokers and investors to see if they are contravening best practice as the statement claims.

It’s been a tough time for those new to investing on the Zimbabwe Stock Exchange with great concern over the status of investments. Institutional investors and those seasoned in the game will recall a similar shut down in 2008 for largely the same reason, the Old Mutual Implied Rate. The market is set to open Monday 3rd August without the fungible shares. Reports yesterday were that Old Mutual has agreed to be listed on the Victoria Falls Stock Exchange. Again no surprises there, who would refuse tax-free operation, lower dividend tax and lower Capital Gains Tax?

Old Mutual Statement

In a press statement published by Old Mutual, they sought to clarify to shareholders their position on the investigation and their cooperation with the government on matters of the Old Mutual Implied Rate. They did not confirm the reports of agreeing to list on the Victoria Falls Stock Exchange but only indicated they were working on ways to list without promoting the Old Mutual Implied Rate. A foreign currency based listing would do that.

One has to wonder what the Financial Intelligence Unit was thinking and why the Securities and Exchange Commission has been (as always) quiet. Surely if the intention was to catch “some players” who have flouted best practice it was a lot easier to catch them in action? Rather than to provide them with a loud warning alarm and give them a full month in a period of reduced activity to reorganise themself. As long the authorities play as they like with the exchange rate, rates like the OMIR will always exist. Even if you get rid of a Zimbabwean dollar-denominated Old Mutual share, or the entire Old Mutual, derived rates such as the Coca Cola Index (which compares Coca Cola prices), the hard-boiled egg index (which compares the price of hard-boiled eggs on the street) and the Cappuccino index will still exist.

Auction Rate creeps again

Zimbabwe auction

Another Tuesday, another Auction and another repeat result. Well sort of. The auction-rate on Tuesday 28th July was 76.7596 Zimbabwean dollars for a single US dollar. This is a jump of 4.6126 from 72.1470 the previous week. This represents the Zimbabwean dollar losing 6% of its value week on week on the official market. Annualised linearly the slide would be over 300% which is probably not the picture the RBZ governor and company had in mind when they dusted off the 2008 instruction manual and brought the auction back.

Zimbabwe foreign currency auction chart

The important indicators to watch remain the size of unsatisfied bids which stood at a very high 25.66% though we understand some of these unsatisfied bids were rejected. The lowest accepted bid rate once again showed the greatest correlation to the rate overall.  Once again this week’s lowest accepted bid rate of 75 was higher than the previous week’s weighted average exchange rate. If this is because of private foreign currency holders placing currency in the auction at their reserve rates increasing Reserve rates then this boat seems to be steering in the direction that all other Zimbabwean currency boats, official or parallel have steered.