How deep are Zim’s capital markets?

Tawanda Musarurwa THE Victoria Falls Stock Exchange (VFEX) is set to expand its offerings with the introduction of contract for differences (CFDs) trading, but how deep are Zimbabwe’s capital markets? CFDs are financial derivatives that allow traders to speculate on an asset’s price movements. One does not have to own the underlying asset(s). The United […]

May 19, 2024 - 09:43
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How deep are Zim’s  capital markets?

Tawanda Musarurwa

THE Victoria Falls Stock Exchange (VFEX) is set to expand its offerings with the introduction of contract for differences (CFDs) trading, but how deep are Zimbabwe’s capital markets?

CFDs are financial derivatives that allow traders to speculate on an asset’s price movements.

One does not have to own the underlying asset(s).

The United States dollar-denominated bourse is partnering with international brokerage firm VCG Markets.

“CFD provides local investors with access to international markets with regard to stocks, indices, foreign currencies and cryptocurrencies,” said VCG Markets innovative operations and business development manager Mr Johnny Nassar.

This, however, would not be the first time that local investors are able to access international markets, as trading of shares listed on bourses in other countries was available on the Zimbabwe Stock Exchange (ZSE) until 1984.

While foreign currency and cryptocurrency derivatives trading has grown in Zimbabwe over the last few years, this has been taking place mostly on unregulated and dubious platforms.

CFD trading adds another layer to the local capital markets, which have seen some changes in recent years.

State of Zimbabwe’s capital markets

According to the Securities and Exchange Commission of Zimbabwe (SECZ), the country had 215 institutions in the capital markets at the end of last year, consisting of three registered exchanges — ZSE, VFEX and the Southern Africa Mercantile Exchange, which was licensed in 2023 and is yet to operate.

A fourth exchange, the Financial Securities Exchange (Private) Limited (Finsec), holds an alternative trading platform (ATP) licence.

As at December 2023, the country had 22 securities dealings firms, an increase from 21 in 2022.

There were 32 licensed asset management firms and 63 licensed financial advisers.

The fastest-growing sub-sector in the local capital markets, however, is the collective investment schemes space. It had 81 collective investment schemes by the end of 2023.

SECZ chief executive officer Mr Anymore Taruvinga attributed this growth to the broadening of tradable financial assets in the country.

“We have seen an increased appetite from asset management firms to register exchange-traded funds (ETFs), real estate investment trusts (REITs) and other types of collective investment schemes,” he said.

“I think this is really coming from broadening the collective investment schemes space in 2020, when General Notice 469 of 2020 was published, which enables new types of investment schemes to be accorded collective investment schemes status that has brought with it REITs, ETFs, private equity funds, commodity funds, venture capital funds and warehouse receipts.

Zimbabwe currently has two REITs — Terrace Africa’s Tigere Property Fund, which was listed on the ZSE in November 2022; and the Revitus Property Opportunities REIT Fund, which was listed in December 2023.

For its first full year of trading, the Tigere Property REIT declared a full-year dividend worth US$1,05 million.

And there are five ETFs, namely the Old Mutual Top 10 ETF (which was the country’s first ETF, listed on the ZSE in January 2021); the Morgan & Co Multi-Sector ETF (January 2022); the DatVest Modified Consumer Staples ETF (March 2022); the Morgan & Co Made in Zimbabwe ETF (June 2022); and the Cass Saddle Agricultural ETF (July 2022).

The country has one commodity fund — the Zimbabwe Mercantile Exchange (ZMX) — which is operated by Finsec.

In the fixed-income space, there is the Karo Bond on the VFEX.

“Our desire on the fixed-income space is that we would actually want to have Government paper being traded on the market,” said Mr Taruvinga.

“Government has issued a lot of paper, such as Treasury Bills and Treasury Notes, and that paper is not on the market.”

The ZSE and VFEX should also typically play an important role in the marketing of parastatal and municipal debt instruments, which are currently a rarity on the local market.

The regulator, however, believes players can do more to bring diverse offerings onto the market.

“We have provided the framework, but in terms of uptake, we still need to do a bit more, and this is not on the policy side, but more on the industry, in terms of players being innovative and taking advantage of the framework that has been presented,” added the SECZ CEO.

Currently, Zimbabwe’s capital markets are concentrated on equities, with the ZSE, which was established in 1894, the single largest player.

The ZSE has long provided a platform for the country’s insurance firms and pension funds to invest their monies, with latest figures from the Insurance and Pensions Commission showing that 23 percent of the pensions industry’s total assets were quoted equities as at December 2023.

As at May 9, 2024, the ZSE had a market capitalisation of ZiG26,7 billion.

The VFEX is a wholly owned subsidiary of the ZSE. In terms of market structure, the ZSE consists of 48 securities, of which 43 are equity instruments and five are exchange-traded funds.

There are also the two REITs.

On the VFEX, there are 14 securities, 11 equity instruments, one bond and two depository receipts.

Cannibalising ZSE

There are, however, concerns that the VFEX has been “cannibalising” the ZSE.

African Sun, Axia Corporation, Edgars Stores Limited, First Capital Bank Limited, Innscor Limited, National Foods Holdings, Padenga Holdings, Seed Co International, Simbisa and Zimplow have all migrated to the VFEX from the ZSE to take advantage of incentives on the US dollar-denominated bourse.


Last year, the ZSE added “Futures” and “Options” trading as new derivatives on the local bourse.

Derivatives are financial instruments whose value is derived from underlying assets, such as stocks.

From their launch in June 2023, the ZSE had settled over 100 Futures contracts around the end of the year.

Futures, like most derivatives, are attractive to investors because they do not require significant financial investment.

According to the ZSE, over that period, only about 30 positions were in default, mainly because they failed to meet margin calls (a demand made by a broker for an investor to deposit additional funds into their margin account).

On the other hand, the ZSE said six Options contracts had been settled since the launch of the derivatives, mainly because of high entry requirements.The exchange requests the investor to deposit the underlying value as collateral.

The bourse has a position limit of US$1 000 (or local currency equivalent) for retail investors and US$10 000 (or local currency equivalent) for institutional investors.

Mr Taruvinga says there is need for more products that are tailored for retail investors.

“In terms of the environment, what I see as missing are products that speak to the general populace.

“We are known for farming and mining, but these are areas that we have not really exposed investors to, directly,” he said.

“Other countries have Futures on hogs, birds, cattle, et cetera.”

He said capital market players can even create derivatives of the gold coins that are issued by the Reserve Bank of Zimbabwe.

Actuary and managing director of Conceptual Fund Managers Mr Gandy Gandidzanwa told The Sunday Mail Business that lack of exposure to more exotic and complex financial structures from assets managers is affecting the growth of the local capital markets.

“An end-to-end investment management ecosystem would also be an overnight game changer. There are just way too many gaps in the current value chain. Investment management is a complex space requiring every node of the ecosystem to be occupied. That lack of market completeness means a lot more that could be happening is just not happening,” said Mr Gandidzanwa.

“For instance, the current system does not proffer a structured channel to invest into the real economy.

“You can imagine how far of a relief the industry could be bringing about if it were to drive export-oriented economic zones.”

Regulatory framework limits

The local capital markets are being guided by a law that was enacted in 2004 and revised in 2013 — the Securities and Exchange Act (Chapter 24:25). “There has been significant change in terms of how the industry operates, in terms of products that have come into effect, that we would want to incorporate into our regulatory framework.

“For example, when it comes to virtual assets, we do not have provisions for that; VFEX is planning to do a commodities exchange, and we do not have provisions for that in our current regulatory framework,” said Mr Taruvinga.

SECZ is also looking to establish an innovation office or a regulatory sandbox.

“This will allow innovators to come and experiment in case we do not have a regulatory framework for it,” said the CEO.

“One of the areas we have been approached by innovators is crowd-funding, which has gained popularity in developed nations in terms of bridging the financing gap between the small players and those that have got funding.”

Supporting the small players

While emerging companies are vital for innovation in the capital markets sector, concerns have been raised that the current capital adequacy framework is burdening small and medium players.

The current capital adequacy mandate requires asset management firms and stockbroking companies to set aside capital equivalent to 13 weeks of their reported quarterly operational expenditure, or an amount of US$150 000, whichever is higher, for asset management firms and US$75 000 for stockbroking firms.

Addressing a “Proposed Capital Adequacy Directive for Securities Market Intermediaries Symposium” earlier in March, SECZ prudential supervision and surveillance officer Mr George Nhepera said the current capital adequacy directive has negatively affected small and medium Securities Market Intermediaries (SMIs).

“This operational risk calculation rule was noted internally to have impacted negatively on most small and medium SMIs, especially those strategically set up as low-cost entities and technologically driven to maximise on efficiency, productivity and high returns for the benefit of shareholders and investors,” he said.

“They could be need to review such amounts for 13 weeks, so as to reduce funds set aside for operational risk to be deployed at the various entities.”


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David Lee Munemo David Lee Munemo is a rising Zimbabwean journalist with a passion for making complex news discoveries accessible to the public. Driven by a belief in the importance of information communication, David's work tackles a variety of news fields, from groundbreaking entertainment research to the latest political news.