Harare — One of the major highlights on the stock market in 2009 was the level of foreign investor participation soon after the introduction of US dollar trading on the local bourse.

At a Seminar held in Johannesburg in October 2008, ZSE Chief Executive, Emmanuel Munyukwi, indicated that foreigners at that time comprised only two percent of the funds invested on the ZSE compared with 30 percent in 1997. Thus during the hyper-inflationary period prior to 2009, the stock market was mainly driven by local investors.

The introduction of the multi-currency in January 2009 was welcomed by all investors as it instantly stabilised the economy especially with respect to inflation and exchange rates.

This was further complemented by the positive developments on the political front through the oming together of the, hitherto, belligerent political parties to form an inclusive government.

As a result, foreign investor participation on the bourse increased. Figures for the second half of 2009 show that, on average, 40 percent of the funds invested on the ZSE belonged to foreigners which represent a phenomenal growth when compared to the two percent holding in 1998 and 30 percent in 1997.

The rise in participation by foreign investors on the ZSE was enhanced by the fact that local investors were constrained by lack of investment funds arising from tight liquidity situation in the economy.

Furthermore, the resurrection of alternative markets such as the foreign currency and money markets further dampened activity by local investors on the stock market.

Foreign investment participation could have been more had it not been for the high transactions cost that rendered the market illiquid. At 7,5 percent, the costs were too high compared to those prevailing in the region of especially South Africa of around 3,5 percent.

It is against this background that bulls stormed the equities market when the lower transactions charges that were announced by the Finance Minister were implemented on Monday (10/01/10).

Presenting the 2010 National Budget to Parliament on 2 December 2009, Finance Minister, Tendai Biti, announced a reduction in transaction costs from 7,5 percent to 3,21 percent, that is, 1,73 percent on the buy side and 1,48 percent on the sale side. Although investors welcomed the development no date for implementation had been given. As a result, investors had been waiting, hoping and praying that one day the policy would be implemented and this, as already noted, happened at "long last" on Monday (10/01/10).

Reflecting the reduction is transaction costs, daily trades shot up to US$2,8 million on Monday (11/01/10) and US$2,4 million on Tuesday (12/01/10) compared to only US$338000 recorded on the first trading of the year on January 4 2010 and an average of US$900 000 during the rest of the week. The bullish sentiment on the ZSE saw share prices responding positively and this coupled with the increase in turnover explains the rise in the Industrial Index by 4,57 percent on Tuesday before a record rise of 8,41 percent yesterday.This represents the index's highest daily gain since the bourse started trading in US dollars in February 2009. The previous highest trade was 7,67 percent on May 7 2009.

Overall, the Industrial Index gained by 16,85 percent during the week which ended yesterday to close at 166,95 points. The Mining Index gained 8,38 percent to 201,28 points.

Movers were led by Apex, up 142 percent at 0,85 cents, followed by Trust, up 100 percent at 1,4 cents and CFX, up 66,7 percent at 0,05 cents. Celsys and Dawn capped the top five gainers of the week. Shakers were led by Border, down 20 percent at 40 cents, followed by Gulliver, down 17 percent at 0,5 cents and Truworths, down 12,5 percent at 1,4 cents. Afdis and Radar completed the top five shakers. There were 43 gainers and 13 shakers in the week.

Going forward, investors need to critically study fundamentals of stocks that they are interested in as recent developments on the equities market clearly testify the consequences of imprudent investment decisions.

Expert technical analysis of stocks is also highly rewarding given the volatility that continue to characterise the Zimbabwe Stock Exchange.

The reduction of transaction costs on the ZSE definitely offers an opportunity for investors to switch from those counters that they consider overvalued to those they believe to be undervalued.