HARARE - Trading on the Zimbabwe Stock Exchange (ZSE) is expected to remain depressed in the medium-term due to diminishing investor confidence and tight liquidity, a local research firm has said.
Zimbabwe Economic Policy and Research Unit (Zeparu) executive director Gibson Chigumira said the stock market’s free-fall was expected to get worse as the year progresses.
“In 2016, activities on the ZSE are expected to continue on a downward trend coupled with low investor confidence, declining economic fortunes worsened by the El Nino effect which will result in one of the most severe droughts since 1992,” Chigumira said.
The research firm noted that the poor stock market performance was also reflected in falling turnover.
“Total turnover value, which stood at $452,87 million in 2014, declined by 49,52 percent to $228,6 million in 2015.
“The volume of shares traded also declined by 30,54 percent from 3,18 billion shares in 2014 to 2,21 billion shares in 2015,” he said.
According to the barometer, foreign investor participation on the local bourse also continued to decline.
“The value and volume of shares bought by foreigners declined by 56,27 percent and 41,77 percent respectively while the value and volume of shares sold by foreign investors declined by 32,61 percent and 53,44 percent respectively,” the Zeparu boss said.
Thus market capitalisation which stood at $4,33 billion at the end of 2014, declined by 28,97 percent in 2015 underpinned by poor performance of the stock market.
Lower stock market capitalisation implies a risky market for investment therefore this will likely affect decision to buy by foreign investors, Chigumira said.
2015 saw activities on the ZSE declining from 2014 levels, as trading was weighed down by low foreign investor participation as well as tight liquidity conditions in the domestic economy.
The industrial index which opened the year at 162,57 lost 47,72 points (29,35 percent) to close at 114,85.
For the greater part of 2015 the index fell below its five-year average for the period 2010 to 2014.
The mining index followed a similar pattern. It opened the year at 72,61, but lost 48,89 points (67,33 percent) to close at 23,72.
“Thus during the year it traded below its five-year average and reached its lowest level since trading resumed in the multi-currency period, of 22,33 in November 2015,” the report said.
Economic experts said despite the depressed activity on the stock exchange in January 2016 that saw turnover dropping by 30,37 percent to $11,36 million, the ruling party’s unstoppable — and in most cases — vicious and fatal fights were denting investor confidence in the country.