Harare – The Standard and Poor Dow Jones indices which is a member of the S&P Global has effectively removed Zimbabwe domiciled constituents from its African Indices.
The S&P African indices is an aggregated indices of Sub Saharan Africa stocks (stock markets). It measures the movement of stocks on an overall basis and this measure gives guidance over a particular region’s performance in terms of return.
S&P Global is an influential global capital markets player.
In a statement S&P said it has made consultations with members of the investment community with regards to Zimbabwe particularly on the potential exclusion of constituents domiciled in Zimbabwe a number of S&P African indices.
Zimbabwe was included in 7 indices on the S&P indices namely S&P All Africa, SP Al Africa Capped, S&P Africa ex South Africa, S&P All Africa ex South Africa Capped, S&P All Africa Select, S&P All Africa ex South Africa Select and S&P All Sub Sahara ex South Africa.
These indices are meant designed to give global investors a performance review of Africa and includes select stocks in different exchanges across the region weighted according to respective market values and foreign participation.
S&P cited the worsening macroeconomic situation regards the foreign currency situation and inflation concerns as the major reasons for pulling off Zimbabwe index constituents domiciled in Zimbabwe.
The Zimbabwe constituents includes heavy cap counters Econet, Delta, Innscor and BAT among others and these constitute a great deal of the local stock market’s weight and are the most demanded by foreign investors.
Zimbabwe has been characterized by hyperinflation in the last quarter of the year and serious foreign payments backlog which has likewise impacted foreign investors portfolio disposals. Foreign investors have not been able to remit receipts from portfolio disposals as well as dividends.
Inflation has impacted on prices of stocks as investors move dump money liquid asset at a premium. This has resulted in the stock market returning almost 60 percent in positive returns on a year to date basis.
Some of the top counters which are constituents of the S&P are up by margins close to 100 percent. The market is now infested with a 3-tier pricing model including the RTGS, bond notes and USD and there are concerns that the current market values are no longer in US dollar terms.
Some have chosen to use the Old Mutual Implied Rate which factors the price of Old Mutual on the JSE in comparison to ZSE to come up with a discount factor to the valuations.
The move to remove Zimbabwe is a clear blow for the country which suffered the same fate over a decade ago during the hyperinflation era, and is desperate need of new foreign flows. It effectively flags Zimbabwe as a potential risky market in isolation thus reducing investor preference.
Last week the Central Bank governor rushed to Cairo to ink a deal with Afreximbank which furthers the bank’s cover to the depreciating local money, nosto stabilization and foreign direct investment.
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