The Zimbabwe Stock Exchange has done wonders this year for most investors. Providing returns that outpace runaway inflation and the exchange rate has put the Exchange in a rarely positive light though it has also seen dark days of closure. Bearing that in mind the ZSE does not exist in a vacuum. While the threat of Victoria Falls Stock Exchange is just starting to show its head the long-standing option of the Johannesburg Stock Exchange is an option that local and investors have surely looked at often. For those who have entertained the idea let’s compare the two exchanges.
While the intent of this article is not to name a better exchange we still need a working methodology to compare the two exchanges. We will look at the two from a consumer perspective and what matters to the investor. Size and variety of counters, the performance of the exchange long and short term, liquidity, volatility and external factors. We will also look at the ease of access. To make this fair we will look at them from a 3rd party perspective, what an investor from another country would face if they tried to invest in the two exchanges.
Well, there is no prize for guessing that the JSE is the larger of the two exchanges. Just how much larger? The JSE market cap stood at US$182.6 billion as at the end of August 2020 while the Zimbabwe Stock Exchange stood at US$1.803 billion at the same time. The difference is huge but only really matters if you want to buy the whole exchange. Another useful measure is the number of listed entities with South Africas exchange boasting just under 500 counters while Zimbabwe’s exchange has 53 active counters soon to be 52 as Dawn Properties will delist after its acquisition by African Sun. The JSE is a deeper and wider market which has its advantages.
Liquidity is in simple the convertibility to cash of something. In markets, liquidity is best measured by the amount of money circulating in the market. We can measure this based on the volume (size) of trades that occur daily. If there are a lot of people buying in and out of the market it stands to reason that an investor will have an easier time selling their stocks and getting cash. This is an important measure to investors because access to your invested funds matters. The JSE record around 1 million trades per week where the ZSE, according to Chief Executive Justin Bgoni records around 1000 trades per week. What’s alarming is that the JSE has 10 times the number of counters, 100 times the market capitalisation but 1000 times the trading activity.
The ZSE makes this comparison a little complicated. This is not due to the exchange itself but due to the complexity of the monetary situation in Zimbabwe. While we can arrive at a short term (Year to date) performance measure for the ZSE the long term is harder to quantify because the money rules and exchange measurements were different. The currency regime has changed so much in 2020 alone with the shifting of goalposts on both transacting rules and position on using foreign currency. All this to say the ZSE has produced astronomical returns year to date which even after dilution for the currency are quite remarkable. The JSE took a huge hit from COVID 19 but has rebounded to just under the levels of the start of the year.
Volatility refers to how much an item responds to fundamentals that should affect it. So for an exchange that would be how much share prices are influenced both upward and downward by factors inside and outside the economic environment. Volatility isn’t bad in itself but it is uncomfortable. If we look at the YTD charts bearing in mind that this is the year of COVID 19 you will see clearly that the JSE has been more volatile. This needs to be taken with a pinch of salt remembering the currency situation. The Zimbabwe Stock found it’s the best time in the wake of COVID-19. While the ZSE does respond to some variables those variables tend to be unpredictable and outside of economic purview.
One last thing to look at in comparing these two markets is the effect and type of external factors that the markets deal with. The ZSE was infamously closed earlier this year for over a month on allegations that the exchange and some companies there were involved in parallel market exchange rate fixing. To make matters worse this is not the first closure of this nature as the exchange was closed from 2008 to 2009 for the same reasons. But its gets worse as foreign investors were forced to stay on the exchange when exchange control regulations changed and the fungibility opportunities were closed earlier this year. While it contributed to the growth in the ZSE the subsequent decline since foreign investors found a way out through the auction system is telling. South Africa is not without its economic problems but they pale in comparison. The regulatory environment does not constantly threaten investors and you can rest easier when invested in this exchange.
While the ZSE has provided a better performance that alone is not enough to make up for the complexity and the hostile regulatory environment. The returns are only meaningful to the extent which you can benefit from them. The JSE offers a more reliable ride for investors.