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Huge blow to Zimbabwe’s capital markets

CLOUDINE MATOLA

Old Mutual Zimbabwe Limited, the country’s largest financial services group, is set to delist  its Exchange Traded Fund (ETF) from the Zimbabwe Stock Exchange (ZSE) tomorrow, signaling a significant setback for Zimbabwe’s capital markets.

As Zimbabwe’s first ETF, its delisting leaves a void in a market eager to expand its range of diversified and innovative investment options.

The exit raises concerns about the future trajectory of financial product development in Zimbabwe.

Launched by the Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, in December 2020 and subsequently listed on the ZSE in January 2021, the Old Mutual Top 10 ETF was designed to track the performance of the ZSE Top 10 Index.

It comprised the largest and most liquid stocks on the exchange, providing investors with a convenient, diversified, and cost-effective means of gaining exposure to Zimbabwe’s blue-chip equities.

Over the past four years, the ETF played a critical role in enhancing market participation, attracting both retail and institutional investors.

It served as an essential instrument for promoting market liquidity, and portfolio diversification.

However, the decision to delist the ETF has raised concerns about the sustainability of such financial instruments in Zimbabwe’s evolving economic environment.

According to Tafara Mtutu, an investment analyst with Morgan and Co, the delisting of the Old Mutual’s ETF removes a vital tool for investors seeking exposure to Zimbabwe’s top-performing equities.

“The delisting itself means that  there will be  no longer be an investable  financial  instrument that  tracks the ZSE’s top 10 stocks by market capitalization. This is a setback  in local capital markets considering  that  one of the most  preferred  ETFs in any capital  market is  one that pools together the largest and most liquid stocks on an exchange.

 The Old Mutual ETF played that role  and its delisting  means  there is now a vacuum that  will need to be  addressed going forward,” Matutu told Business Times, a leader in business, financial and economic reportage.

The loss of the Old Mutual ETF also highlights the challenges faced by Zimbabwe’s capital markets in retaining innovative investment products.

ETFs, which have gained global prominence, are instrumental in increasing market participation and improving transparency. The absence of such tools could deter potential investors and limit market development.

Old Mutual Investment Group Managing Director, Marjorie Mayida, cited difficulties in replicating the ZSE Top 10 Index due to changes in the composition of listed securities as the primary reason for the delisting.

“When the ETF was established, the objective was to bundle ZSE securities that were liquid, high-dividend-paying, and underpinned by strong fundamentals. However, the evolving nature of the ZSE’s composition has made it increasingly challenging to replicate the index, leading to a widening tracking error,” Mayida told Business Times.

She emphasized that the decision to delist the ETF was made to safeguard shareholder value.

“Delisting was deemed the most viable solution to protect the interests of investors,” she added.

The delisting process has been conducted in compliance with the ZSE Listing Requirements and the Securities and Exchange Act. According to ZSE CEO, Justin Bgoni, the unitholders of the Old Mutual ETF convened on December 12, 2024, to resolve the termination of the listing.

“The ZSE hereby notifies the investing public of the voluntary delisting of the Old Mutual Top 10 ETF. This decision, approved by unitholders and in accordance with Section 11 of the ZSE Listing Requirements, takes effect on January 17, 2025,” Bgoni stated.

Following the delisting, the ETF will be dissolved, and its assets distributed to unitholders in accordance with resolutions passed at the fund’s extraordinary general meeting.

 The final asset distribution is scheduled for next week, ensuring a seamless conclusion to the fund’s operations.

The Old Mutual ETF was a groundbreaking product in Zimbabwe’s capital markets, offering investors exposure to a diversified basket of high-performing equities.

Its introduction was seen as a significant milestone in broadening the market’s appeal, particularly to retail investors with limited resources to construct their own diversified portfolios.

Globally, ETFs have revolutionized investment strategies by providing cost-efficient, transparent, and liquid investment opportunities.

In Zimbabwe, the Old Mutual ETF offered similar benefits, acting as a benchmark for innovation and promoting market efficiency.

The absence of the ETF underscores the need for innovative solutions to maintain market competitiveness. Without such instruments, the market risks stagnation, reduced liquidity, and diminished investor confidence.

The delisting of the Old Mutual ETF presents an opportunity for stakeholders to reflect on the challenges that led to this decision and develop strategies to address them. Policymakers, market regulators, and financial institutions must collaborate to create an enabling environment for similar products to thrive.

Enhancing market depth, improving the quality of listed securities, and fostering greater transparency are critical steps toward attracting and retaining innovative financial instruments.

Additionally, investor education initiatives should be intensified to promote understanding and adoption of sophisticated investment products like ETFs.

While the departure of the Old Mutual ETF represents a setback, it also highlights the potential for growth and innovation in Zimbabwe’s capital markets.

By addressing the underlying issues, the market can rebound stronger, offering a broader range of investment opportunities to both local and international investors.

The delisting of Old Mutual’s ETF from the ZSE is a sobering reminder of the challenges facing Zimbabwe’s capital markets.

The absence of this pioneering product leaves a significant gap, underscoring the importance of continuous innovation and adaptability in a dynamic financial landscape.

As the market adjusts to this development, stakeholders must prioritize sustainable strategies to ensure that Zimbabwe’s capital markets remain competitive, resilient, and attractive to investors.


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