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New Zimbabwe rule threatens collapse of bourse
MacDonald Dzirutwe, Reuters
August 18, 2005

http://za.today.reuters.com/news/newsArticle.aspx?

HARARE (Reuters) - Zimbabwe's bourse faces possible collapse following a new government directive that, in effect, requires pension funds to increase government bonds and bills as a proportion of their portfolios, a bourse official said.

Pension funds, the biggest investors on the Zimbabwe Stock Exchange (ZSE), are required to invest 35 percent of their total assets in government bonds and Treasury bills, but they have been calculating that percentage based on book value.

On Tuesday, Finance Minister Hebert Murerwa said pension funds must calculate these assets based on market value, a move traders said would force companies such as First Mutual and Old Mutual to offload their shares to raise money to buy bonds and bills and meet the required percentage.

The bourse has remained one of the few areas of investment in a crumbling economy. Returns have outpaced annual inflation, which raced to 254 percent in July.

Zimbabwe's central bank bonds are finding few buyers, meanwhile, including pension funds which prefer the stock market and its higher returns.

"What will happen is that pension funds will be forced to sell their shares to meet the shortfall created by the new requirement, but no one in the market has the capacity to absorb the shares," ZSE Chief Executive Emmanuel Munyukwi said on Wednesday.

"The market becomes a sellers' market. It's a disaster, and there is a very high possibility that the market will collapse," he told Reuters.

Pension funds have until October to effect the changes.

TAXES TOO
The ZSE main industrial index fell 6.5 percent on Wednesday with only 1.3 million shares changing hands, down from the daily average of 20 million as traders digested the impact of Murerwa's announcement.

There are 79 listed companies on the bourse, including South African insurance firm Old Mutual, Pretoria Portland Cement and tobacco giant British American Tobacco.

The ZSE's market capitalisation stood at 37.6 trillion Zimbabwe dollars as of the end of July.

Analysts said President Robert Mugabe's government was desperate to raise funds to meet national budget commitments after six years of recession.

The government has increasingly relied on the domestic market to borrow funds to finance budget shortfalls after a fall-out over Mugabe's controversial policies with international donors, who have withdrawn crucial support for balance of payments.

Murerwa also announced a raft of taxes, including a 10 percent tax on all shares sold on the ZSE.

"The government is trying to extract every last dollar that might be out there, but by so doing making people more poorer when they retire," Harare consultant economist John Robertson said.

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