• ZSE has lost more companies this year since the establishment of VFEX
  • Zimplow is the latest company to delist
  • Unpacking the subtext

Harare- Victoria Falls Stock Exchange (VFEX) has achieved noteworthy accomplishments and capital raising since its inception in 2020. VFEX is a subsidiary of the Zimbabwe Stock Exchange. VFEX's remarkable performance can be attributed to its market-oriented policies, such as relaxed listing requirements and tax incentives, which have attracted both domestic and international firms seeking to raise capital amid a turmoil economic enviroment, despite incurring liquidity challenges. 

The emergence of VFEX as a competitive alternative to ZSE emphasizes the latter's need to adopt similar market-oriented policies to remain relevant and attract investors. The exodus is primarily due to rapid depreciation of local currency which is making the bourse less attractive in hedging inflation.

Implications for the ZSE:

The mass departure of companies from ZSE to VFEX is a matter of concern for both the bourse and the remaining listed companies. The gradual reduction in liquidity due to the exodus requires an immediate fix by the bourse's management. Further curtailment in liquidity, coupled with trading using an embattled currency and blended inflation, may harm the bourse's prospects of attracting new listings and investors. Since 2023, no company has listed on ZSE, and many have left, which indicates a red flag. Moreover, blue-chip companies, including Econet Wireless and CBZ Holdings, have incurred significant losses due to exchange rate losses. The exodus paints a bleak picture for the bourse as it is failing companies through exchange losses and investors for hedging inflation.

The departure of companies from ZSE could also lead to a reduction in the value of listed companies as investors may shift their attention to VFEX and sell their holdings in ZSE-listed companies. VFEX's advantage of trading in hard currency, which is used to hedge against inflation, is likely to attract more investors. With the ongoing Zimbabwean dollar crisis, investors may shy away from the bourse, causing a knock-on effect on the broader economy.

To address this issue, ZSE may need to introduce policy reforms or incentives to attract new listings and investors, such as reducing listing fees or offering tax incentives to companies that list on the exchange. Exploring new growth areas, such as listing more technology companies or partnering with other exchanges for cross-border trading opportunities, may also help.

Implications for VFEX:

Since its launch, VFEX has attracted successful companies such as Padenga Holdings, which returned to profitability in FY2022, and Caledonia Mining Corporation, which has demonstrated the worth of the bourse through capital raises, mega profits, and sustained dividends. Caledonia is now the yardstick for measuring efficiency for those seeking to list on VFEX. Other well-performing companies on VFEX include Seed Co International, First Capital Bank, Karol Mining, PPC, and BNC, which is set for a massive bounce back in FY2024. On average, VFEX-listed companies are performing better than those listed on ZSE. The mass exodus of companies to VFEX is a positive development for the exchange, indicating that companies are attracted to the benefits of listing on VFEX, such as access to foreign currency and a wider pool of investors. Increased listings on VFEX could enhance the exchange's liquidity and trading volumes, making it a more attractive destination for investors and companies.

To support its growing market, VFEX may need to invest more in infrastructure and technology, such as improving trading systems and expanding its clearing and settlement capabilities. VFEX may also need to maintain high regulatory standards and transparency to build investor confidence and attract more listings, for instance, by avoiding the blended inflation shenanigans employed on ZSE, which gives a false reflection of inflation. The success of VFEX could have positive spillover effects for the Zimbabwean economy, such as attracting more foreign investment and enhancing the country's reputation as a destination for business and investment.

Implications for the Zimbabwean economy:

The exodus of companies from ZSE to VFEX may reflect a broader lack of confidence in the Zimbabwean economy, as companies seek a more predictable and stable business environment. This depletion of confidence may be due to issues such as the adoption of blended inflation, inconsistent policies, and high bank policy rates on the Zimbabwean dollar. The continued departure of companies from ZSE signals a decline in the Zimbabwean economy and a struggle for companies to find growth and profitability opportunities in the domestic market.

While it may be too early to predict the demise of ZSE, the government needs to address the underlying issues behind the decline, such as improving the business climate and promoting investment in key sectors like agriculture and manufacturing. The success of VFEX presents an opportunity for Zimbabwe to attract more foreign investment and enhance its reputation as a destination for business and investment. This success could also lead to increased competition among exchanges in the region, as other exchanges may seek to replicate VFEX's success by offering similar benefits to companies and investors.

The exodus of companies from ZSE to VFEX has significant implications for the Zimbabwean economy and securities markets in the country. A continued departure of companies from ZSE could weaken the bourse's liquidity and lead to a reduction in the value of companies listed on the exchange, which could affect the broader Zimbabwean economy. To address this, the ZSE and the government may need to implement policy reforms and incentives to attract new listings and investors and promote investment in key sectors.

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