The Victoria Falls Stock Exchange (VFEX), driven by its appeal to investors looking for US dollar-denominated assets in a high-risk,high-reward environment, has its potential constrained by low liquidity in the market and limited trading, experts have said.
Since its inception in October 2020, VFEX, a US dollar-denominated stock exchange, has seen listings from various sectors such as mining, financial services, tourism, hospitality, and clothing.
With a market capitalisation of US$1,28 billion and the ability to trade in United States dollars and other convertible currencies, the VFEX is poised to become a vital player in Zimbabwe's economic landscape.
The potential for new listings and increased foreign investor interest could provide upside potential, particularly if global market conditions remain favourable.
"However, there is still a likelihood of stagnation due to depressed US dollar liquidity on the market," reads an FBC Securities monthly stock pick report.
The US dollar-denominated exchange has been attracting listings through a raft of incentives, such as the ability for companies to raise working capital in hard currency and reduced trading costs, among others. Several companies have since inception managed to conduct capital raisings.
Caledonia Mining Corporation raised US$5 million from VFEX, while Karo Holdings raised US$36,8 million through the US dollar-denominated structured debt instrument that was successfully listed on VFEX.
The Pfuma Fund (PF) REIT, mainly sponsored by Simbisa Brands and Big Poppas Property, aims to list on VFEX this year and seeks to raise a sum of US$15 million.
Malone Gwadu, a financial economist said that the VFEX had attracted some counters to its listing, but its ability to fulfil capital-raising issues has been curtailed due to various aspects, mainly low liquidity.
"This is due to very tight foreign currency circulation in the market, especially in the formal market where commodity prices globally have plummeted, thereby causing limited foreign currency-generating capabilities, which propels VFX liquidity and capital-raising ability.
"Policy (issues have) also reduced its ability to fully meet expectations of capital raising as capital is quite shy, for instance, the back and forth on export retention when a company is VFX listed and also tax incentives," he said.
In Wednesday's trading session, 519 000 shares traded on the VFEX, yielding a paltry US$32 200, while the VFEX All-Share Index plunged2,31 percent from losses in First Capital Bank (18,16 percent), Axia (5,05 percent), and Innscor(4,06 percent).
According to IH Securities, VFEX market capitalisation was6,8 percent ahead of July to close August off at US$1,36 billion, benefiting from the listing of Invictus Depository Receipts during the month.
The All-Share index, however, eased 1,14 percent for the month, with only five of the 15 listed securities closing in the green.
The exchange also saw a 92,84 percent decrease in volumes traded as trading normalised following an 87.13 million Zimplow share block that changed hands during the prior month.
Total value traded slid 33,52 percent to US$2,05 million,with Innscor and Simbisa leading at US$1.25 million and US$0.37 million,respectively.
Batanai Matsika, an investment analyst, said VFEX could have been better, but because of liquidity issues, there is limited trading,but in terms of capital raising, it has saved the purpose.
"Businesses indexed in US dollars still have appetite to go there,and I think they have not moved because they are still assessing the liquidity issues on how they will evolve. It's about timing, but every business would want to trade in USD," he said.
Another analyst, Enock Rukarwa, said VFEX has played a partin deepening capital markets in Zimbabwe; however, it continues to be ham strungby liquidity issues and a confidence deficit emanating from the currency woes.
He said the migration of companies from the Zimbabwe Stock Exchange (ZSE) to VFEX is a zero-sum game to capital market development, though it creates some value pockets for issues and investors.
"The slowdown in migrations currently is chiefly due to discouragement from a regulator perspective, as it is tantamount to taking from the left hand to give to the right hand on the same body," said Rukarwa.
Gamuchirai Hogwe, an Equities Research Analyst at IH Securities said the VFEX has provided much-needed conduit for capital to flow in the market.
She said the VFEX has particularly been a boon for mining houses.
"We have had the Karo mining bond, initial and secondary raises for Caledonia and then recently we also had Invictus complete a ZDR issuance on the exchange," she said.
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Ms Hogwe said whilst migrations from the main bourse may appear to have slowed down, the pipeline of listings on the VFEX remained healthy.
"Just to name a few, we have the pending launch of the REIT category with The Mosi REIT, The Eagle REIT as well as the Pfuma Fund REIT having announced the intention to list.
"Then in addition, Kavango Resources has also started the process to list via the issuance of shares, showing not only a growing marketbut diversity of offerings on the VFEX," she said.
Justin Bgoni, the VFEX chief executive, recently said the bourse continued to attract listings from both domestic and foreign companies and was targeting more than six new listings by the end of this year.
"We anticipate welcoming more than six new listings this year, and the diversification of products will attract new investors," he said.
He said the Australian Securities Exchange(ASX)-listed Invictus Energy completed a U$10million capital raise from Zimbabwean institutional investors and subsequently listed the issued Zimbabwe Depository (ZDRs) on the VFEX.
Mr Bgoni noted that the pipeline of counters migrating to thebourse also remains steady, with Bridgefort Capital having announcedits intention to move its listing to the bourse in the current year.
