eBusiness Weekly
Tawanda Musarurwa
Capital markets regulator, the Securities Exchange Commission of Zimbabwe (SecZim) is working to diversify local securities trading through the introduction of derivatives and real estate investment trusts (REITS).
Currently, the Zimbabwe Stock Exchange (ZSE) is the backbone of the country’s capital market. But a general lack of diversity in securities has worked against long-term capital raising, especially in view of the underperformance of the local equities market. Notwithstanding an unprecedented rally in 2017 on the back of economic uncertainty and an adverse liquidity situation, the ZSE has not performed well over the years.
SecZim chief executive Tafadzwa Chinamo admits that the local capital market has been something of a one-trick pony.
“Capital markets investments cover a wide range of products. But locally, our market is not that well developed and is dominated by shares although one can invest in collective investment schemes or unit trusts and other privately sold funds,” he said.
“The Securities Exchange Commission of Zimbabwe is focused on developing local markets so that a wide range of investment products such as REITs, derivatives are available.”
Capital markets essentially function for the trading of equity and debt instruments, and to this extent they channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, Government and individuals.
The introduction of derivatives and REITs will add to equities, bonds and debt trading, as well as to the alternative trading platform, the Financial Securities Exchange.
Derivatives can either be traded over-the-counter (OTC) or on an exchange, although the former are considered to be riskier.
They can come in the form of futures contracts, forward contracts, swaps, options, credit derivative and mortgage-backed securities.
Investopedia.com defines a REIT as “a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trades on major exchanges like other securities and provide investors with a liquid stake in real estate.”
Broadening the options within the local capital markets may help boost the economy as firms get increased opportunity to raise long-term funds.
“The capital market is a subset of the broader market, it is a part of the financial system where funds are mobilised and channelled to productive sectors of the economy which is the broader market,” said Chinamo.
