Investors pile into OM despite moratorium
Old Mutual Plc shares have remained a favourite for Zimbabwe Stock Exchange investors despite the moratorium placed on dually listed companies that prohibits the sale of their shares within 90 days of purchase.
On June 24, the Reserve Bank of Zimbabwe (RBZ), through Exchange Control Directive RU102/2019, advised that with effect from 25 June 2019, any investor who shall purchase a dual listed share on the Zimbabwe Stock Exchange (ZSE) shall only be allowed to sell the share on the ZSE or on an external stock exchange after a vesting period of 90 days from the date of initial purchase.
Apart from Old Mutual Plc, other shares that were affected by the directive included; Amalgamated Regional Trading Corporation Holdings, CAFCA Limited, Hwange Colliery Company Limited, Meikles Limited, NMBZ Holdings Limited, PPC Limited, and Seed Co International Limited.
“For investors wishing to uplift dual listed shares from external bourses for purposes of selling the shares on the ZSE, such sales shall only be allowed to be executed after a period of ninety (90) days from the date of registration on the ZSE,” reads the directive from the RBZ.
The move to place restriction on the trading of Old Mutual and other dual listed companies was motivated by allegations that speculators where using the Old Mutual Implied Rate (OMIR) to manipulate the exchange rate.
OMIR is a proxy or a figure that is used to compute the implied exchange rate for that day based on Old Mutual share value between three countries Zimbabwe, South Africa and England where they usually trade at the same market share price on all the stock exchanges.
Old Mutual’s share price, according to market watchers, acted as a proxy for the parallel market exchange rate as it informed the exchange rate in a way.
“Everyone else who wanted to find out where exactly the exchange rate was supposed to be in terms of the local currency and the US$, they used the Old Mutual Implied Rate (OMIR), as a result this inflated the rate to the RTGS dollar,” said Morris Mpala in an interview with our sister paper The Chronicle recently.
“This puts pressure on the exchange rate of the RTGS dollar against the US dollar,” said Mpala.
Investors are, however, not deterred and have continued to buy the stock.
Post introduction of the moratorium, investors have bought $124 million worth of Old Mutual shares, the highest for a single counter between June 24, 2019 and October 31.
Buyers have also been bullish with the share price gaining 111 percent to $36,22 from June 24 to 31 October 2019. More than 5,214,747 shares have changed hands during the same period.
Market watchers say the counter, which is fungible and trades on the JSE and LSE, is still being used to repatriate fund outside the country. Formal systems have limited supply of dollars making it difficult to access cash for those with foreign obligations.
At least 49 percent of shares listed on the Zimbabwe Stock Exchange are fungible as permitted by the Exchange Control guidelines. Fungible stocks are usually in demand during periods of uncertainty such as now with the reintroduction of the Zimbabwean Dollar, which has led to mixed trading.
According to Walter Mandeya, an analyst with Trigrams Investments, Old Mutual shares still provides a viable channel for those who want to move funds out of the country.
“Last week the RBZ governor said only US$1,3 billion had been traded since the foreign exchange interbank market was introduced on February 22, 2019. That’s roughly US$130 million per month. In my view, this is hardly enough to quench the needs of importers and those with foreign obligations to pay.
“So the 90 day vested period is no deterrent as it still takes time for one to access forex on the interbank market, so there is still demand for the share,” said Mandeya.
The fungibility of Old Mutual shares also makes it a viable option for investors who are looking for foreign exposure.
Zimbabwean investors, unless given special approval by the central bank, are not allowed to invest in markets outside the country, but can invest in Old Mutual Plc which is diversified into the African continent and pays a regular dividend to shareholders, including local ones.
Under normal circumstances, its share price is fairly stable, making it a good candidate for hedging. ZSE listed shares have, however, of late, have been volatile and often traded at a huge premium to prices prevailing in other markets.