No need to establish more exchanges in the current environment, says SECZ
THE Securities and Exchange Commission of Zimbabwe (SECZ) says it is not advisable to establish more exchanges in the country when the Zimbabwe Stock Exchange (ZSE) hardly trades by regional standards.
This comes at a time when the ZSE is planning to launch a secondary bourse in the last quarter of the year to be known as the Zimbabwe Emerging Enterprise Market (ZEEM).
Chinamo said it defies logic to consider introducing multiple exchange platforms when the sole bourse in the land is facing liquidity constrains.
“Markets have to be liquid, only through liquidity can price discovery occur. This brings into question the reasoning behind establishing more exchanges when the ZSE hardly trades by regional standards. Where will the volumes come from?” he argued.
Liquidity on the ZSE plunged 39 percent in the year to July 2015, with most heavyweight counters taking major knocks. Liquidity of trades on the bourse totaled US$153,66 million between January and July this year against US$252,97 million during the same period last year.
The bourse also registered a 32 percent dip in value traded in the first six months of the year to 136,72 in comparison to US$200 million in the same period last year.
Chinamo said the exorbitant charges of the financial services sector also contributes to the low volumes of trade on the bourse as the RTGS cost of US$10 discourages retail investors. He said the ZSE should attract quality listings so as to trigger the interest of potential investors.
“People have to trade in instruments that interest them. The question then is: are investors really interested in what is currently listed on the ZSE? Perhaps they would like to see Zimplats, Mbada Diamonds or perhaps a State owned enterprise,” he said.
The mining sector remains under represented on the ZSE, with only four entities listed on the mining index since 2009, yet it is a major magnet for investment in the country.
Chinamo said information on assets and credit risks have to be readily available, stressing the need for disclosure of financial information in audited reports.
“Only through access to timely accurate information can investors fully appreciate the risk-return profiles of investors,” he said.
Chinamo also said there is a need to broaden the understanding of capital markets in the country which is usually confined to listed companies on the ZSE.
“When we speak of capital markets, most people think of listed companies. If we want to promote capital inflow into our economy, we have to stop applying this narrow definition and talk about capital markets as the engine that drives the entire financial system.
“The financial system consists of mechanisms that allow investors to contract with each other to move money through time, to hedge risks, and to exchange assets that they value less for those that they value more,” he said.
He admitted that the regulation of financial markets is not perfect as the legal system needs to be better resourced to deal with financial matters while the Companies Act also needs updating, and not forgetting the contentious labor reforms. FinX