ZSE to perform better on strengthening economy

HARARE – The local equities market has long been hamstrung by weak economic fundamentals, but could post significant gains as the economy continues to improve.

Securities and Exchange Commission of Zimbabwe (SECZ) chief executive Tafadzwa Chinamo said there is a strong linkage between the broader economy and capital markets.

“In the Zimbabwean scenario, it is in fact the depressed economic performance that has contributed to the general underperformance of the local capital markets.

“With low capacity utilisation, company closures, high unemployment and economic fundamentals pointing southwards and low disposable income brought about by poor economic performance, the local capital market has found it difficult to mobilise savings from the public and channel them to the country’s productive sector, hence lack of provision of long-term capital,” said Mr Chinamo.

“This has also led to thin trading and low level of liquidity. It is also crucial to note that stock prices are not solely driven by economic fundamentals but by a function of other non-economic factors such as emotions, cognitive psychology and expectations.”

Over the past few years, the Zimbabwean economy has been beset by constrained liquidity which left most economic agents struggling to operate at optimal levels, resulting in lower gross domestic product (GDP) growth.

But with the economy expected to improve going forward, on the back of Government’s initiatives to enhance foreign direct investment and re-engagement with multi-lateral financiers, the improvement might soon be reflected on the Zimbabwe Stock Exchange (ZSE) and other local capital markets.

In the first quarter of 2018, the ZSE recorded a 204 percent upturn in the value of shares traded to $144, 5 million, up from $46, 4 million in the prior comparable period.

The improvement was on the back of increased activity by foreign buyers, who typically dominate plays on the local bourse.

This is perhaps indicative that international investors are still bullish on the country’s economic prospects going forward.