Capital markets experts were this week optimistic that liquidity on the Zimbabwe Stock Exchange (ZSE) would rebound after Treasury removed the 180-day vesting period and suspended 40% capital gains tax (CGT) on stocks sold before 270 days from purchase.
The 40% was meant to protect the Zimbabwe dollar, which was replaced by Zimbabwe Gold (ZWG) in April.
However, since the measures were introduced in 2022, investor interest and trading have declined drastically on the ZSE.
This happened at a time when the bourse had become a hedge against currency volatility.
Owing to the reduction of liquidity, the Ministry of Finance, Economic Development, and Investment Promotion scrapped the two measures, and experts said the bourse will see an upturn in liquidity.
“Market capitalisation on the ZSE gained 31,24% in nominal terms from ZiG28,58 billion in May to close June at ZiG37,51 billion. In US$ terms, the exchange closed at US$2,05 billion, up 32,67% from the prior month. Performance on the bourse was bolstered by the heavyweights, with the Top 10 Index climbing 34,53%,” financial services firm IH Securities said, in its June 2024 outlook for the bourse.
“Within the month, a total of 183,13 million shares traded hands, representing a 250,02% uplift to the month of May. Volumes were supported by EcoCash which traded a total of 138,15 million shares as a foreign investor offloaded their holdings to a local manufacturer in a series of block trades.”
“Value traded in real terms grew 51,25% month-on-month to US$5,74 million. Post the introduction of the new currency, ZWG, in early April, the ZSE has gradually built up activity with the market currently on a growth trajectory,” IH said.
- Inaugural Zim investor indaba highlights
- Stop clinging to decaying state firms
- ZB explores options to tackle inflation
- Zim operations drive FMB Capital
Keep Reading
The removal of the 180-day vesting period and standardisation of capital gains withholding tax are expected to boost liquidity on the bourse, the financial services firm added.
“In late June, the government gazetted SI 110 of 2024 which standardised the rate of capital gains withholding tax on listed marketable securities to 2% and suspended the 40% capital gains tax on securities traded on the ZSE with immediate effect,” IH said.
“This SI is valid for the six months between 28 June and 28 December 2024. These are welcome measures as liquidity post the introduction of the vesting period was approximately 51% lower than before. Going forward, liquidity on the bourse is expected to improve as these deterrent taxes have been suspended, presenting capital gains upside.”
Enhanced ease of trading attracts more participants to the market.
The higher trading volumes associated with increased liquidity also contribute to more accurate price discovery, reflecting the true value of securities based on real-time supply and demand dynamics.
Additionally, higher liquidity lowers transaction costs for all market participants.
In a highly liquid market, the bid-ask spreads narrow, meaning the difference between what buyers are willing to pay and what sellers ask decreases.
This reduction in spreads benefits both investors and traders by minimising their costs.
Furthermore, the reduced costs and increased confidence in fair pricing encourage more activity and investment, creating a positive feedback loop that sustains and enhances market vibrancy and efficiency.
“It's difficult to put timelines for now but we hope there will be a swift movement and from the carbon markets’ side, we have a lot to do in terms of creating the product to be traded on ZSE,” Association of Investment Managers of Zimbabwe chairperson Shelton Sibanda said, in messaged responses to the paper’s inquires.
“The other bottlenecks that remain have to do with SI 159/2023 that came up with blanket on all carbon credits projects and new regulations are faced by delays in processing the necessary paperwork to enable carbon to be traded at ZSE.”
