2022 a defining year for Zimbabwe’s capital markets

Zimbabwe is anticipating the listing of some Real Estate Investment Trusts (REITs) this year.

ZSE is expected to list the fifth ETF, Cass Saddle Agriculture ETF this week
FINSEC introduced automated contract writing and derivatives trading, complete with direct integration of the trading, clearing, custody, and settlement facilities
VFEX introduced broker-controlled accounts to ensure convenience in trading on the US dollar-denominated stocks trading platform
VFEX is expected to launch its mobile securities trading platform, VFEX-Direct, at the end of this month in a move meant to simplify trading

This year is shaping up to be a defining year for Zimbabwe’s capital markets. Financial Securities Exchange (Private) Limited introduced derivatives and chatter over a new asset class has whet curious investors’ appetite.

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Zimbabwe is anticipating the listing of some Real Estate Investment Trusts (REITs) sometime this year, and this could deepen the country’s capital markets.

The Zimbabwe Stock Exchange (ZSE) is the backbone of Zimbabwe’s capital market with a history dating back as far as 1896. It is one of the oldest and most highly diversified exchanges in Africa given listings spanning all key sectors of the economy.

Financial Securities Exchange (Private) Limited (FINSEC) is an alternative trading platform licensed by the Securities and Exchange Commission of Zimbabwe as a Securities Exchange.

While Victoria Falls Stock Exchange (VFEX), a subsidiary of the Zimbabwe Stock Exchange, is a financial offshore center that trades in foreign currency.

According to an article by The Anchor published on July 8, 2022, VFEX will launch its mobile securities trading platform, VFEX-Direct, at the end of this month in a move meant to simplify trading, especially the capture of the burgeoning retail investor community.

ZSE and VFEX Chief Executive Justin Bgoni said the development informs the reason the exchange introduced broker-controlled accounts to ensure convenience in trading on the US dollar-denominated trading platform.

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“We are hoping to have the VFEX Direct by the end of the month, that’s the end of July or a bit earlier. The reason why we have to develop it separately from the ZSE Direct is because of the currency issue. So we don’t want to mix the Zimbabwe dollar and the US dollar. We want it to be on separate platforms and there are also a few different rules but largely it has been because of the currencies,” he said.

The contribution of the increase in retail investor participation on ZSE indices particularly in the first quarter of 2021

Exchange Traded Funds (ETFs)

Three additional ETFs Morgan & Co Multisector ETF, Datvest Modified Consumer Staples ETF, and Morgan & Co Made in Zimbabwe ETF were listed on ZSE this year. Meanwhile, the ZSE is expected to list the Cass Saddle Agriculture ETF this week.

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An exchange-traded fund (ETF) is a basket of securities that can be bought or sold on a stock exchange the same way a regular stock can. According to Investment Company Institute statistics, the ETF industry globally ended 2020 with over US$5.5 trillion in investments.

ETFs can track a benchmark index (passive) or actively managed as is the case with the new listing.

Early this year, the Securities and Exchange Commission of Zimbabwe highlighted that at least three new ETFs are to list on the ZSE this year as the capital markets continue to grow.

According to the ZSE prospective Exchange Traded Product issuers will have to prove that the underlying asset or security track is sufficiently liquid to satisfy the exchange such that there will be proper price formation in the product.

Securities and Exchange Commission of Zimbabwe’s (SECZim) acting Chief Executive, Gerald Dzangare at a media workshop in the capital, said the market would see more of these listings going forward.

“In addition to the Old Mutual ETF and the Morgan and Co ETF, there are three more coming on board of which two have already been approved and one is in the pipeline,” he said.

Real Estate Investment Trusts (REITs)

CBZ Holdings’ asset management unit, Datvest, is working on establishing Real Estate Investment Trusts (REITs) to be listed on the Zimbabwe Stock Exchange (ZSE). They are mulling a REIT and the plans are at an advanced stage to list a fund rumoured to be worth in the region of US$12 million.

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The REIT will be promoted by a large pension fund and managed by Datvest. It will be made up of commercial real estate and will also look at purchasing distressed properties and turning them around.

Property developer Terrace Africa also announced a plan to list a REIT on ZSE by year-end. They said this after opening their new US$20 million Highland Park Mall in Harare. According to Terrace Africa’s Brett Abrahamse, the REIT will be called Tigere Property Fund.

A REIT is an asset class that invests in several real estate investments, which can be both greenfield and brownfield investments. A REIT invests in new or existing properties that are then leased to generate rental income which is subsequently distributed to the REIT investors through dividends.

According to a related article by The Independent dated March 11, 2022, REITs offer several advantages over real estate stocks and property ownership, such as (i) liquidity, (ii) lower costs, (iii) guaranteed dividend pay-outs and (iv)Tax breaks. Property markets all over the world are typically very illiquid when compared to REITs.

Derivatives

FINSEC introduced automated contract writing and derivatives trading, complete with direct integration of the trading, clearing, custody, and settlement facilities. The market is on a 6-month trial window to enable market participants and investors to familiarise themselves with the newly established market.

According to a related article by Techzim dated March 16, 2022, a derivative is an agreement between traders for selling or buying of shares, commodities, and currency in the future at a price agreed upon today hence little or no investment is needed to enter into such a contract.

The contract gives the right to buy or sell the securities at the previously agreed price irrespective of the price of the same in the spot market. The value of this contractual agreement changes with the price movement of the mentioned security in the spot market.

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Derivatives are used to reduce the exposure of risk (hedging) and assist in countering financial risks associated with fluctuation of price, interest rate, and currency exchange rate. They also protect sellers from loss due to price fluctuation (price downfall).

Derivatives also provide a platform to speculate and make a profit for those who are ready to take risks. Above all financial derivatives transfer risks from those who want to avoid them to those who are ready to accept them.

Brokers

According to an article by the Zimbabwe Mail published on July 5, 2022, the Victoria Falls Stock Exchange Limited (VFEX) introduced broker-controlled accounts to ensure convenience in trading on the US dollar-denominated stocks trading platform.

“VFEX is pleased to advise stakeholders on the introduction of broker-controlled accounts with effect from July 1 2022 for the VFEX investors,” VFEX said in a statement.

A brokerage account is an arrangement in which an investor deposits money with a licensed brokerage firm, which places trades on behalf of the customer.

Although the broker executes the orders, the securities belong to the investors, who typically must claim as taxable income any capital gains incurred from the account.

VFEX said, “The broker-controlled account is opened by a VFEX registered stockbroker on behalf of their clients who wish to trade in securities on the VFEX, allowing the stockbroker to interact with a licensed custodian on behalf of the investors.”