Zimbabwean Stock Exchange CEO Discusses ZiG Currency Impact

Justin Bgoni, chief executive officer of the Zimbabwe Stock Exchange, at the Zimbabwe Stock Exchange in Harare, Zimbabwe, on Tuesday, July 11, 2023. Zimbabweans frantically trying to protect their savings from a collapsing currency have driven the country's main stock index up by 760% this year. Photographer: Cynthia R Matonhodze/Bloomberg via Getty Images
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IN light of recent developments following the introduction of Zimbabwe’s new currency, the Zimbabwe Gold (ZiG), and its subsequent impact on the stock market, The Southern African Times has conducted an exclusive interview with Justin Bgoni, CEO of the Zimbabwean Stock Exchange (ZSE).

Motivated by a recent Bloomberg report titled “Zimbabwe’s ZiG Wipes Out 330% Stocks Rally” issued on April 23rd, this interview seeks to delve deeper into the challenges and opportunities presented by the transition to ZiG.

With insights drawn directly from the CEO, this article aims to provide clarity and transparency surrounding the implications of ZiG on the stock market, investor sentiment, and the strategies being implemented by the Zimbabwean Stock Exchange to navigate this period of transition. Let’s dive into the conversation with Justin Bgoni to understand the facts behind the headlines.

1. QuestionIn a Bloomberg report titled “Zimbabwe’s ZiG Wipes Out 330% Stocks Rally” issued today, the 23rd of April, it was mentioned that the introduction of the Zimbabwe Gold (ZiG) currency impacted the stock market. Could you elaborate on how this impact has affected trading volumes and investor confidence?

Just to set the record straight, following the introduction of ZiG on 05 April 
2024, the ZSE started to trade in the new currency ZiG effective 08April 2024. The weekly average trading volumes before conversion from ZWL to ZiG was 13,760,410 shares, and 938,550 shares after the conversion.

We can attribute this to the fact that It also took time for participants to fine-tune their systems, as you might be aware that the capital markets consist of different players. Investors pre-fund their accounts through their bank, and most investors were not able to immediately trade during the period as they waited for the conversion of their accounts from ZWL to ZiG.

We are in a transition period, considering that the currency has been in use for less than three weeks now, so it is still too early to measure investor confidence. However, the fundamentals of the market have not changed and we are patient on this with our investors  as they also need to understand the new currency.

2. Question : In the same Bloomberg report, it was noted that several factors contributed to the drop in trade volume, including the transition period for lenders and tight liquidity conditions. How is the Zimbabwe Stock Exchange addressing these challenges?

Answer: The ZSE engaged and continues to engage custodian banks on their migrations since these are key stakeholders in our ecosystem. Since conversion and complete migration of the banking sector to ZiG, a gradual increase in trading volumes has been noticed from the first week which had 478,943 shares traded to 2,070,756 shares the following week (week ending 19/04/2024) which is a 332% increase.

Investors are also still trying to understand the values after the conversion, and it will take time, so as the ZSE we remain patient. We have been communicating to our stakeholders on how we converted the share prices and we will continue with the communication so people understand. In the long run, as the confidence builds up, liquidity will also improve.3. Question:  Investors seem to be hesitant and unclear about the value of ZiG terms. What steps is the Zimbabwe Stock Exchange taking to educate investors andclarify the value of ZiG?

Answer: The ZSE issued a public notice advising investors on how we conducted the conversions of the share prices effective 08 April 2024. CLICK HERE TO DOWNLOAD NOTICE.

The public notice indicated the conversion rate used by the ZSE at the initial conversion exchange rate of ZiG 1 to ZW$2498.7242 which was prescribed in the operational manual for structured currency issued by the RBZ on 5 April 2024.

The notices we issued included the trading adjustments, the settlement adjustments, and the trading  adjustments on the ZSE Direct (the ZSE online trading platform). The ZSE also communicated with participants on the conversion of all share prices and the opening price sheet was shared  before the first day when we started trading inZiG which was on the 08 th of April 2024.

4. Question: The conversion rate of 1 ZiG to 2,498 Zimbabwean dollars was set by the central bank. How has thisconversion rate affected trading activities and investor behaviour on the stock exchange?

Answer: The conversion rate has not directly affected any trading  activities, as this was prescribed by the central bank, The ZSE was able to convert its system in time for investors to trade.

What can be attributed to  the change in trading activities is that people are still trying to understand the new currency and considering that it has been less than three weeks, we understand the trading behaviour of the investors.

5. Question: Some brokerages have reported a significant decrease in revenue due to the decline in trading volumes. How is the Zimbabwe Stock Exchange supporting these brokerages during this period of reduced activity?Answer: The stockbrokers are licensed entities that operate independently from the ZSE, therefore it is up to the brokerage firms to come up with strategies that can uplift their business during this period.

However,during this period, some brokerages can be cushioned considering  that they are also licensed on the VictoriaFalls Stock Exchange and investors are also trading on  the bourse.

6. Question: FBC Securities research analyst Enock Rukarwa mentioned that moving to ZiG is a downside for stockbrokers, given that 80% of the economy uses dollars for transactions. What strategies is theZimbabwe Stock Exchange considering to address this concern and support stockbrokers?

Answer: As mentioned above, the stockbrokers are independent of the ZSE, as they are licensed participants with their businesses, therefore during this period as investors are still understanding the new currency, they can take advantage and push trades on the Victoria Falls Stock Exchange.

7. Question:  Imara Asset Management suggested that it wouldhave been more sensible for the Zimbabwe Stock Exchange to convert to US dollars, especially considering that many listed businesses report in US dollars and pay dividends in US dollars. How doesthe Zimbabwe Stock Exchange respond to this suggestion?

Answer: The ZSE platform trades in local currency, therefore we used the conversion rate that was prescribed in the operational manual for structured currency issued by the Reserve Bank of Zimbabwe on 5 April 2024.

8. Question: With share prices converted to ZiG but yet to find new levels, Imara Asset Management expects some upheaval  over the next month. How is the Zimbabwe Stock Exchange preparing for this potential upheaval and ensuring market stability? Answer: The ZSE has control measures in place. The maximum permissible movement for each counter per trading session is 15% up or down, except for penny stocks which are at 100%, and a complete market  halt at 15% movement of the All Share Index therefore, stability in prices is ensured.9. QuestionThe CEO of Securities Exchange Commission Zimbabwe, Anymore Taruvinga mentioned that equity  investments on the ZSE were simply converted to ZiG without altering the number of shares  held. How has this affected investor perceptions and behaviour on the stock exchange?

Answer: Our engagements with investors over the years have significantly contributed to the level of understanding that  investors now have when it comes to how the market functions. 

The number of securities held was not altered, and the market will eventually get back to its normalcy as understanding of the new currency improves.

10. QuestionThe Executive Director of IGO Group, a renowned brokerage  and advisory solutions firm in Zimbabwe, Lloyd Mlotshwa mentioned a domino effect on stockbrokers  due to low average daily turnover,liquidity issues, and subsequent impacts on earnings. How is the Zimbabwe Stock Exchange working to mitigate these effects and restore confidence?
Answer: The ZSE is currently lobbying for changes in the investment  environment. These changes include vesting periods and other charges on trading transactions.

These efforts by the ZSE will have a positive effect on overall earnings or returns. The ZSE is also focusing on diversifying our product offerings as this will assist in restoring confidence and improving trading activities.

11. QuestionWhat measures is the Zimbabwe Stock Exchange implementing  to address the overall decline in trading volumes and value of transactions on thestock market?

Answer: Our focus is on diversifying our product offering and expanding the instruments offered on the exchange.

12QuestionsConsidering the challenges posed by the transition to ZiG, how does the Zimbabwe Stock Exchange plan to ensure the continued growth and stability of the  stock market in Zimbabwe?

Answer: As stated above, it is important to allow our investors time  to understand the new currency, once the understanding  improves, we will see increased activity on the market. It is, therefore, a collective effort between all the participants and the Government.

We will continue to play our role as the ZSE in promoting financial education as well as diversifying our product offering to ensure continued growth.

In conclusion, the interview with Justin Bgoni, CEO of the Zimbabwean Stock Exchange, sheds light on the complexities surrounding the introduction of the Zimbabwe Gold (ZiG) currency and its impact on the stock market. Bgoni’s insights provided valuable clarity on the challenges faced by investors, brokerages, and the stock exchange itself during this transition period.

Despite the initial hurdles and uncertainties, Bgoni emphasized the Zimbabwean Stock Exchange’s commitment to addressing these challenges and ensuring market stability. From strategies to educate investors about ZiG’s value to supporting brokerages through revenue declines, the ZSE is actively working to navigate the transition.

As Zimbabwe continues to adapt to the new currency landscape, the Zimbabwean Stock Exchange remains a pivotal player in maintaining investor confidence and facilitating economic growth. With proactive measures and a focus on transparency, the ZSE aims to overcome the current obstacles and pave the way for a thriving stock market in the future.

Source: The Southern African Times