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Gamu Pasi
The year 2021 has seen a surge in retail participation on the Zimbabwe Stock Exchange (ZSE) largely driven by new trading platforms most of which are USSD based. The upward trend in retail participation is expected to continue in 2022 and probably beyond and should that direction persist, we might end up seeing exciting dynamics in our markets.
What caused the increase in retail participation?
Traditionally, trading on the ZSE has been strictly through stockbroking firms who are registered members of the ZSE. However, new trading platforms like C-Trade and ZSEDirect which are USSD based, have allowed retail traders to come on board through technology.
Retail investors are usually the young generation with lower incomes and were not eligible to meet stockbrokers minimum investment amounts for them to be signed up.
The new trading platforms now allow everyone to trade from a minimum investment of as little as $500 using their phones and paying through mobile platforms like Ecocash, OneMoney, and “Telecash”.
Also noteworthy, has been the need to preserve value of the local currency by investing on the ZSE. ZWL bank balances have proved to be a liability hence retail investors have been opting for the ZSE. Although retail participation has been improving, it is yet to reach 2006-2009 hyperinflation levels.
Retail investors and meme stocks
As previously highlighted, retail investors are usually young non-professional individuals who are not taking investing as a career. They trade for speculative purposes so they can get an extra income. However, their impact even on international markets has been on an increase.
Globally, retail investors have been known for creating what are called “meme” stocks, defined as stocks which skyrocket in price in a short period (often hours or days) because of a sudden surge in interest via online or on social media leading to high buying activity among small individual investors.
No company is listed as a meme, but can be made one by small individual investors. In the US, stocks gain popularity on social media platforms such as Reddit’s r/wallstreetbets and the inexperienced retail investors are not worried about company fundamentals.
However, it is important to note that meme stocks are very risky as they rely on high interest from small investors to sustain the stock prices.
When they rise, they do so in a very high magnitude and when they happen to fall, they do so in the like manner.
The GameStop example
In January 2021 in the US, shares of struggling video game retailer, GameStop, saw an unprecedented rise.
By the middle of the month, the share price had soared over 500 percent since the beginning of the year caused by influence from social media platform, Reddit.
Since then, the stock price has been on an up-and-down swing but never lower to December 2020 levels.
Some retail investors are still confident of such meme stocks and their social media platforms are heavily subscribed by over 11.5 million followers.
Can we liken actions by Fund Managers on the ZSE to meme stocks?
Retail investors on the ZSE have been known for trading in small cap counters with low share prices allowing them to accumulate a sizeable number of shares which is not possible to do with heavyweight counters.
This has resulted in the ZSE Small Cap Index gaining by a massive 3,280 percent in 2021 while the rest of the indices rose by a range of between 270 percent and 310 percent for the year.
On the other hand, all the other indices finished higher in January 2022 but the Small Cap Index was the only one to trade in the negative after losing 5,23 percent for the month.
This just reflects how volatile actions by retail investors can be. Most noteworthy, despite all the price movements in small caps, retailers on the ZSE do not trade significant volumes hence they do not affect the general market sentiment.
Significant trades on the ZSE take place mostly in the Top 10 counters by market cap and such actions are moved by fund managers.
Actions by Fund Managers do here and there replicate meme stocks on the ZSE. They tend to get funds at almost the same time and they all stampede to purchase the same stocks thereby leading to higher bids and/or higher share prices.
As long as liquidity will be available, stock prices for blue chip counters will continue to soar.
On the other hand, when selling activity starts they all seem to follow suit and stock prices will tumble.
Key takeaway
Retail participation on the ZSE is improving and is most likely to continue in the coming years. Yes, for now it is still insignificant but as it improves we will see more actions just like what happens globally in meme stocks.
Most stock market conversations are taking place through WhatsApp groups and investor education continues from college and university students who are getting more interested in investing. Better and exciting times lie ahead.
Bongani Ndlovu