Financial Gazette (Harare)
Witness Chinyama
22 November 2008
Harare — THE stock market fell sharply yesterday following monetary policy measures introduced by the Central Bank meant to curb fraudulent speculative behaviour that had gripped the market.
This is because investors were abusing the two trading session structure of the Zimbabwe Stock Exchange to "buy" and "sell" shares that were not backed by actual credit balances in their bank accounts.
For instance, an investor would instruct a broker to buy shares of certain listed companies in the morning callover and order the sell of part of those shares during the afternoon callover, thereby making huge profits as share prices would have increased by a massive percentage.
As there would be no money in the investor's account, part of the profit would then be used to pay for the shares that would have been "bought". This had worsened the current hyperinflation environment. Truly this is fraud and the Central Bank governor could not put it any better when he said:
"You only need to look at the madness that has been going on at the stock exchange and the fictitious, obnoxious and artificial wealth that was being created in an environment where fundamentals have actually not improved. My warning to those who are playing on the stock exchange is that if you play with fire you know what happens."
Investors did not take hid of this warning by the governor as the market continued to rally with the Industrial Index rising by 221 percent last Friday to close at 22,774,416,901,917,800,000 points while the Mining Index shot up by 711.70 percent to close at 23,497,119,042,339,10-0,000 points.
This continued wayward behaviour by investors, or are they fraudsters, led the governor to issue another warning through an interview with the Sunday Mail:
"The Zimbabwe Stock Exchange has degenerated into the most poisonous vehicle, through which artificial wealth is being created, which in turn is fuelling inflationary impulses in the economy...as monetary aut-horities, we call upon the Ministry of Finance, together with the Securities Commission, to swiftly introduce firm rules of play that will keep the ZSE in check and to be more supportive of tangible productive activities on the ground as opposed to being a haven for retrogressive speculation," he said.
Investors apparently continued defiant as reflected in the continued market rally on Monday with the Industrial Index closing higher by 94.54 percent at 44,305,117,281,981,700,000 points while the Minings Index rose by 87.14 percent to close at 43,973,273,996,398,900,000 points. This led Gono to take the following drastic measures:
(a) All trades on the Zimbabwe Stock Exchange are to be supported by actual credit balances confirmed by the buyer's bank in writing, signed by that Bank's CEO. This is mainly because as it is banks have failed to reign in their lower level staff; and
(b) Any counter-party who fails to settle ZSE obligations due to lack of funding will be automatically blacklisted on Zimbabwe's whole banking system, with all accounts being frozen and closed. The defaulter will, therefore, not be able to operate a bank account in Zimbabwe.
Realising these measures, investors panicked, turning the market into a sellers' market during the past two trading days. For instance, on Tuesday the Industrial Index fell by 38.57 percent to close at 27,218,184,-131,623,900,000 points with Delta being the only counter to be traded during the first callover. Minings retreated by 19.22 percent to close at 43,973,273,99-6,398,900,000 points.
This fall was worsened by the management-by-walking-around (MBWA) or is it management-by-observation (MBO) approach by the Securities Commission whose members visited the ZSE trading floor for the first time since its appointment.
Introducing the members, ZSE chief executive Emmanuel Munyukwi said the commissioners were there to observe the goings on in the wake of the Central Bank governor's new measures.
It never rained but poured for stock market investors as the ZSE itself could not be outdone by the actions of the Central Bank and Securities Commission as it announced that starting yesterday there would be a single callover at 10:00 am in a bid to counter allegations of market manipulation by some brokers.
The ZSE boss said that he would continue to monitor the situation and switch back to the traditional two trading session arrangement should the situation normalise. This string of developments saw investors continuing to flee in all directions yesterday as the ZSE implemented its single callover decision.
As a result, the Industrial Index fell by a further 58.57 percent to close at 11,276,469,261,624,6-00,000 points while the Mining Index closed lower by a marginal 1.42 percent at 35,017,21-0,170,516,200,000 points.
These policies have caused losses to a number of investors who had borrowed to fund share purchases.
What a funny way of pricking the stock market bubble. Or is it just a temporary squeeze?
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Some things that happen in Zimbabwe never stop to amaze me. Where was Gono all along when all these terrible tradings were taking place?How can we have sextrillions of trading? what kind of investment is this ? Can someone please explain for me . 'Icho' can you comment.