[2008-01-18]  Stockbrokers Raise Investments to Minimum of $5bn
Stockbrockers have raised minimum amounts to be invested on the stock market by between 900 percent and 1 900 percent since mid-December last year, making equity investments a preserve of a few rich individuals.

Individuals and institutions now need between $5 billion and $10 billion to invest on the Zimbabwe Stock Exchange via stockbrokers, up from $500 million required mid-December 2007, and $1 billion at the beginning of this month.


Brokers interviewed yesterday cited the high cost of shares, and that of handling transactions, as the principal driver of increases in the minimum investment amounts. On the surface, however, the steep increases virtually sideline the low-income earners from investing on the stock market, save through unit trusts. Brokers argued that equity investments were largely bankrolled by a few dollars saved in the bank, now these type of savings had disappeared leaving only a few individuals and institutions with sufficient financial muscle to engage in equity trades.

Investors are allowed to buy a minimum of 100 shares in any counter on the ZSE. However, it would make little sense for the stockbroker when an investor buys, for example, 100 Willdale shares at a cost of $5 million (at yeaterday's price of $50 000). In this instance, the stockbroker would have to charge stamp duty plus several other transaction costs, which makes the $5 million far short of the costs.

In examples like this, the new minimum investment thresholds make sense. However, the higher fees also put a damper on the ZSE's thrust to extend investment knowledge and opportunities to rural Zimbabwe and other remote areas. The ZSE, in conjunction with mobile phone company Econet, has been promoting schoolchildren competitions on stock market investments as a way of encouraging equity trade participation from the grassroots level.

It is not clear whether Zimbabweans in remote areas, or in schools will be able to raise funds as high as $10 billion to invest on the stock market, which is, however, 90 percent dominated by institutional investors. ZSE chief executive Mr Emmanuel Munyukwi said yesterday that he was not aware of the increases in the investment minimums.

Economic analysts have, however, defended the increases, saying they were in line with the prevailing economic environment.

"If this were a normal economy there would be no minimum amount to invest save for the restriction that shares cannot trade in a lot size less than 100 shares. "You should bear in mind that the smaller the number of shares, the higher the costs will be as a proportion of your total purchase price," said an economist with an investment bank. "And that because stockbroking firms are no longer allowed to accept cash, this will make one incur bank charges even on ridiculous amounts such as $50 million, which do not necessarily create tangible value given that inflation is estimated to be over 30 000 percent."

On purchasing shares, the brokerage fee is charged at 2 percent and stamp duty at the same level. The stock market has been the favoured investment destination with the industrial index rallying to close 2007 with a 335 000 percent gain and the best performing counter rising over 6 million percent.

Given the continued negative real investment rates emanating from hyperinflation and controlled nominal investment rates, non-interest bearing assets such as equities continue to be the logical investment options.


Source: Copyright © 2008 The Herald.