The Development of Capital Markets in Zim

Batanai Matsika
Globally, we have seen a revolution in the development of capital markets. The internet has also changed the way business is conducted as IoT (the Internet of Things) and artificial intelligence have taken center stage.

Along the same lines, global financial markets have evolved with the introduction and trading of new instruments, from CFDs (Contract for Differences), ETFs (Exchange Traded Funds) to REITs (Real Estate Investment Trusts).

Zimbabwe has also caught up with this trend as the traditional stock market has moved from manual to automated systems. For example, the Zimbabwe Stock Exchange (ZSE) has moved from an out-of-call system to an Automated Trading System (ATS).

We are seeing a convergence of technology and finance and this has opened up the stock market to anyone with an internet connection.

Direct market access for investors

In line with the shift to automated trading, the ZSE has launched a Direct Market Access (DMA) facility which allows ZSE trading members to provide direct trading terminals to their DMA (institutional investors) clients.

DMA is a mechanism by which fund managers and institutional investors can enter their orders directly into the automated trading system (ATS) through a client link terminal without manual broker intervention.

This new development means that a buyer can place their own buy and sell orders instantly, and “announce” the quantity and price of a stock at which they are willing to trade.

The main advantages of DMA are:

traders have more control and full transparency of their order book;

There is less risk of human error as orders do not go through brokers or market makers;

It offers more anonymity – often appealing to institutional traders who would prefer no one to know what they are buying or selling;

Reduced overhead for brokers because all they do is allow clients to transact through their computers;

Information leaks are also minimized because the exchanges are done anonymously; and;

Reduced transaction costs because only the technology is paid for and not the usual order management and monitoring responsibilities that come with an order sent to a broker for execution.

The main advantage is that DMA platforms can be integrated with sophisticated algorithmic trading strategies that can streamline the trading process for greater efficiency and cost savings. We therefore expect future developments in capital markets in Zimbabwe to be modeled around DMA platforms.

Online stock retail

Most readers should have followed how the stocks of memes such as GameStop and AMC Entertainment have dominated US stock markets.

It also demonstrates that the financial market landscape has completely changed as it has merged with the world of social media and a younger generation of traders who have been empowered by online platforms.

One of the latest developments in Zimbabwe’s capital markets has been the introduction of C-Trade and ZSE-Direct. These online platforms allow anyone from anywhere to buy and sell shares on the Zimbabwe Stock Exchange (ZSE) and the Financial Securities Exchange (FINSEC).

In addition, the platforms also offer Zimbabweans in the diaspora the opportunity to invest in stocks with added simplicity. This can be done via USSD, mobile apps or web based solution. For example, the C-Trade platform also allows investors interested in rich stock information, analysis, trends and stock price movements to have all this information at their fingertips. Overall, these platforms are in line with global trends as they use internet and mobile phone technology, which in turn opens the markets to retail investors.

Social trading – the latest trend

The development of online trading platforms such as C-Trade and ZSE-Direct has also fostered a collaborative economy given the increased use of social platforms. Social trading is the latest trend that allows investors and traders to be kept informed of market developments through social trading groups or communities.

They are basically informal groups made up of individuals who share ideas and stream information about a common interest, which in this case is stock trading.

In Zimbabwe, online communities such as piggybankadvisor.com use WhatsApp and Telegram to engage with investors and traders.

piggybankadvisor.com is a rapidly growing online community of trading and investing enthusiasts who use digital platforms to increase the participation of individuals, households and businesses in local and global investment markets. It is also a powerful educational platform that empowers users with educational and insightful articles and blogs. This matches global trends.

For example, Twitter is revolutionizing agricultural markets in the United States. Commodity brokers and traders are paying close attention to tweets as they can now gather real-time updates on planting intentions and yields and track a host of trends such as weather conditions and flu outbreaks.

Twitter also allows traders to follow media and research groups, giving them tips and recommendations that can influence their trading decisions.

Overall, social media platforms and online communities remain an important source of information for investors and traders despite the risks associated with “fake news”.

Enter the Exchange Traded Fund

The latest development in local capital markets has been the launch of the ZSE Top Ten Index Exchange Traded Fund (ETF).

It should be emphasized that ETFs have the characteristics of a Unit Trust but are also different.

An ETF is a basket of securities that trades on an exchange, just like a stock. This means that ETF prices fluctuate throughout the day as the ETF is bought and sold. This is different from mutual funds which only trade once a day after the market closes.

The main advantage of an index ETF like the Old Mutual Top 10 ETF is that it replicates the composition of an index and therefore gives the investor a performance that reflects the underlying index. Plus, the ETF is a cheaper way to access a wide range of stocks.

So, are we there already?

Although we have seen a rapid evolution in terms of trading platforms and new products, there is still room for new developments.

For example, there is a need to deepen the capital markets through the introduction of ETFs that provide exposure to global equities, commodities such as gold and platinum as well as different investment themes and special situations. Also, there is a need to develop a robust derivatives market as it is essential for hedging purposes.

Overall, local capital markets are evolving and we should expect to catch up with other more developed markets. For example, new technologies that are disrupting global financial markets relate to algorithmic trading.

Increased demand for fast, reliable and efficient order execution along with lower transaction fees are expected to fuel the global growth of automated or algorithmic trading.

It involves using a computer program, robot or software to create orders and automatically submit them to a market or exchange.

That said, the introduction of ATS and DMA facilities as well as online trading platforms in Zimbabwe should position the market to take the next step in engaging ROBOTS.

Matsika is head of research at Morgan & Co and founder of piggybankadvisor.com. — +263 78 358 4745 or [email protected]/[email protected]