Increase retail investor education: Mthuli
RETAIL investors are encouraged to continue investing on the stock market but they must do so with professional advice and not get into the market blindly.
The last couple of years have seen an evolution of retail investors, not only in Zimbabwe but across the world. In a space of three years, the number of retail investors on the Zimbabwe Stock Exchange has more than tripled, reflecting increased interest in the equities market.
This increased participation by retail investors coincided with the bullish trend that has been experienced on the local bourse.
From a valuation of just above US$1 billion in 2019 to more than US$8 billion using parallel market rates, the ZSE has been a very attractive platform for funds looking for a home.
Fundamentals on the ground have largely been in tandem with Government’s economic projections and corporate results showing signs of growth.
Naturally good fundamentals attract investments.
There are however, other determinants to the market’s rally.
The first one is that the Zimbabwe Stock Exchange is being used by individuals and institutions as a safe haven against local currency depreciation and rampant inflation.
The second one is that the bourse is now seen as a platform for speculation by other economic agencies pushing prices beyond intrinsic valuations.
Authorities have blamed the ZSE saying it is being used by speculators to hurt the local currency.
Finance Minister Mthuli Ncube described the market rally as a bubble that needed to be pricked. And through measures announced by President Mnangagwa such as the suspension of bank lending and increasing Capital Gains Withholding Tax from 2 percent to 4 percent for stocks held for less than 270 days, the bubble seem to have been pricked.
The ZSE’s overall market capitalisation has dropped from a high of $3,4 trillion to $2,5 trillion as on Tuesday this week.
But as authorities pricked the market to deal with the “speculation” driven rally it came as a shock to retail investors who had seen the stock market as a rewarding investment platform.
Most retail investors, currently smarting in losses, could be discouraged from continuing to invest in the stock market and rightly so.
The suspension of trading on the ZSE, several times, makes it look like a haven of illegal activities.
Investors who had bought into Old Mutual and PPC Limited are currently unable to trade those shares risking significant losses.
This raises questions on the suitability of the ZSE as a safe place for investment.
In an interview on the sidelines of the World Economic Forum which ended yesterday in Davos, Switzerland, Finance and Economic Development Minister Professor Mthuli Ncube said retail investors should not feel discouraged.
“We continue to encourage investment on the ZSE.
“But there is need for increased investor education so that those buying shares do not buy because others are buying,” he said.
Stock markets often suffer from herd mentality.
Herd mentality is the tendency of the people in a group to think and behave in ways that conform with others in the group rather than as individuals.
Stock investors, riveted by recent market rally, need to resist emotional responses
and the herd mentality when investing, Minister Ncube said.
He said investors, including retail investors, should be able to tell when a stock is overvalued or overbought and should “not be in it.”
"That information is required so that investors don’t get tricked or get carried away in a stock market bubble.
He, however, said bubbles do happen in markets and its up to the regulator to regulate that.
“Its not easy money, it can come down, but that’s the stock market.”
We had to deal with the currency volatility and speculative activities on the ZSE, he said.