ASL’s VFEX listing to bolster investor sentiment

Victoria Falls Stock Exchange (VFEX)

AFRICAN Sun Limited (ASL) became the first hospitality company to list on the foreign currency-denominated bourse, Victoria Falls Stock Exchange (VFEX), on Friday, April 14, 2023 after migrating from the Zimbabwe Stock Exchange (ZSE).

The counter became the 10th to trade its stock on VFEX, and the 8th to delist from ZSE for a listing on VFEX.

Meanwhile, the board of directors of First Capital Bank (FCB) have also recommended that the bank transfers its listing from the ZSE to VFEX. Before end of April, a property company, WestProp Holdings is expected to list on the bourse through an initial public offering. This would bring total listings to 12 before mid-year.

VFEX has, since its inception, experienced low activity due to liquidity challenges on the market, which stem from fewer shares compared to the ZSE. The success of VFEX, therefore, is premised on attracting more listings, which in-turn increases the market share of the bourse and shares available for trade to the public and subsequently result in improved liquidity.

While the liquidity of a stock market is affected by a number of fundamentals, which include market participants, respective company performance, economic conditions and market regulations, among others, trading volumes and market capitalisation also affect activity on a market.

Higher trading volumes mean that there are more buyers and sellers actively trading shares at any given time, increasing liquidity levels. Market capitalisation refers to the total value of all outstanding shares of a company's stock. Companies with large market capitalisation tend to have more liquidity than those with smaller ones because they attract more investors.

From another angle, a market with a high market capitalisation also tends to attract more investors.

While the ZSE has been on a bull-run since early this year due to the relaxation of Zimbabwe’s contractionary monetary policy, VFEX has had sell-offs as liquidity remained a long-standing obstacle to attaining viable investment returns.

The market has shed 4,5% since the beginning of the year, with three counters suffering more than 20% losses.

This has been attributed to low liquidity on VFEX, as well as company fundamentals and macro-economic factors.

The low liquidity levels on the market stems from fewer listings, which affects the number of shares in issue available on VFEX counters.  The listing of ASL on VFEX increased aggregate market capitalisation by over US$127 million, which is significant in improving investor sentiment on market size.

The listing of FCB, if successful, will buttress the aggregate market capitalisation by a further US$65 million. Currently, VFEX flaunts of a market capitalisation of US$1,15 billion, which has significantly declined due to the bear-run on the market. However, this represents 41% of overall ZSE market capitalisation, which is commendable given the number of listings on both markets. However, the number of shares on the bourse has increased by a staggering amount with the listing of ASL, which could be buttressed by the listing of FCB. This is then expected to see the market marginally improving from current activity levels. Nevertheless, other fundamentals have to be addressed in projecting a price growth on VFEX.

In Zimbabwe, inflation tends to have a positive correlation with stock prices as shares chase value, given a constant stance on money supply. When inflation soured in 2020 and 2021, the ZSE recorded world-best performance on a year to date return basis. However, despite a souring inflation in 2022, the bourse dipped significantly due to tightened liquidity.

Given the current US dollar deflation in the country, US dollar stocks are expected to play along.

The combination of inflation and liquidity, as aforementioned, will also have a bearing on returns. Since liquidity is already curtailed, while safe-haven demand is low, US dollar stocks are likely to remain subdued.

Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — [email protected] or [email protected], Twitter: TWDuma_


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