Today in an Extraordinary Government Gazette, the Minister of Finance, Mthuli Ncube has suspended the ‘fungibility’ of three stocks traded on the Zimbabwe Stock Exchange. The suspension is for 12 months from today. This is in a bid to arrest the continued deterioration in value of local currency on the parallel market.
What is fungibility in the first place?
When a commodity is fungible it means that it is exactly equal to another one that is like itself. The perfect example is money. A dollar in your pocket is exactly the same as a dollar in my pocket and the two can be exchanged without either of us losing any value. In Zimbabwe we do know that a physical note is not fungible with the same nominal value of currency in a bank account or mobile money wallet
Why these three companies?
All three companies are listed on the Zimbabwe Stock Exchange as well as other stock exchanges outside Zimbabwe. For example, Seedco is also listed on the Botswana Stock Exchange whilst Old Mutual is listed on the London Stock Exchange as well as the Johannesburg Stock Exchange.
The stocks have so far been completely fungibkle meaning that there was no difference whether you purchased these stocks on the ZSE or on the other exchanges they are listed on, they were the same and one could be exchanged for another.
When the Finance Minister abolished the multicyurrency system last year, he also announced that investors who bought stocks in dual listed companies had to hold those shares for at least 90 days before disposing of them. He was trying to stop the behavior that was become widespread within certain circles whereby folks would buy shares locally and dispose of them on an external exchange and thus exchanging local currency for forex.
The reverse was also happening: people and companies would also buy the dual listed stock from the external exchange and dispose locally to take advantage of the mismatch between the official exchange rate and the parallel market exchange rate.
It looks like the 90 day moratorium didn’t work and Mthuli Ncube has introduced stricter measures.
Are these the only dually listed companies on the ZSE?
Hippo Valley Estates’ parent company suspended its listing on the Johhanesburg Stock Exchange late last year. Hwange Colliery which has been suspended on the ZSE as well as the JSE also announced suspension of its trading on the London Stock Exchange effective 20 February this year.
As far as we know NMB is still dually listed on the ZSE and LSE. Meikles is listed on the same exchanges too but the company has been undergoing major changes to the investments it owns and there could be changes to the status of its listings as well.
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