Flight to VFEX exposes cracks in capital markets

Zimbabwe’s capital markets may be entering a defining moment.

A growing migration by investors from the Zimbabwe Stock Exchange (ZSE) to the US dollar-denominated Victoria Falls Stock Exchange (VFEX) is exposing structural weaknesses in financial architecture — and raising fresh questions about confidence in the Zimbabwe Gold (ZiG)-based market.

Analysts say the shift is increasingly becoming more than a routine portfolio adjustment.

Instead, it reflects persistent investor mistrust in local currency assets and growing concern over unresolved regulatory and liquidity constraints affecting the ZSE.

In a recent investor brief, brokerage Fincent Securities warned that the trend could weaken the competitiveness and long-term relevance of Zimbabwe’s oldest bourse.

“The ZSE is facing a crisis of relevance as companies increasingly opt for the VFEX or go private,” the firm said.

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Fincent pointed to the impending delisting of telecoms giant Econet Wireless Zimbabwe and the potential departure of First Mutual Properties as signals that the ZiG-denominated exchange is struggling to retain major counters.

Zimbabwe’s capital markets have undergone several structural shifts in recent years as authorities attempted to restore stability following prolonged currency volatility and hyperinflation.

The introduction of ZiG in 2024 was intended to stabilise prices and rebuild confidence in the financial system. In the 2026 monetary policy statement last month, the Reserve Bank of Zimbabwe said inflation had eased to 4,1%, marking a return to single-digit levels.

Authorities have also pointed to relative exchange rate stability as evidence that macro-economic conditions are improving.

However, analysts say these gains have yet to translate into renewed confidence in the ZiG-denominated capital market.

“Despite the RBZ reporting a return to single-digit inflation and relative exchange rate stability, the ZSE continues to grapple with several unresolved challenges,” Fincent noted.

Among the most persistent problems is lack of fungibility between the ZSE and VFEX — a structural barrier that prevents the seamless transfer of securities between the two exchanges.

Fincent argued the issue could be resolved through stronger regulatory coordination rather than maintaining separate foreign exchange platforms.

“Despite the RBZ’s shift to an algorithm-based electronic foreign exchange trading system to improve transparency and price discovery, the ZSE, VFEX and banks can easily address fungibility issues on the local-denominated exchange without a separate electronic foreign currency platform,” the firm said.

Liquidity constraints are another critical challenge.

Although ZiG has brought a degree of currency stability, trading activity on the ZSE remains subdued. Analysts say institutional investors remain cautious because they lack clear exit routes into hard currency.

Fincent described the situation as a gradual “hollowing out” of the local exchange.

“Institutional investors remain wary of the lack of an exit route into hard currency, leading to low trading volumes compared to the US dollar-denominated VFEX,” the brokerage said.

The performance gap between the two exchanges has become increasingly evident.

Zimbabwe’s capital markets recorded modest gains in February, but VFEX significantly outperformed the ZSE.

The ZSE All Share Index rose 0,86% month-on-month, supported mainly by medium-cap stocks, which gained 7,59%. Large-cap counters posted subdued gains, while small caps remained unchanged.

Market capitalisation increased 1,13%, while turnover surged 78,74% to ZiG2,42 billion.

By contrast, the VFEX delivered stronger results. Its All-Share Index rose 6,01%, while market capitalisation climbed 6,97% to US$2,66 billion.

Turnover jumped 196,47% to US$30,52 million, reflecting stronger liquidity and higher investor participation.

Analysts say this divergence underscores a structural investor preference for hard currency-denominated assets.

Zimbabwe’s equities market is also lagging behind regional peers.

Nigeria’s All Share Index rose 16,60% during the same period, while Kenya’s NSE 20 gained 13,83%. South Africa’s JSE All Share Index advanced 6,62%.

Beyond liquidity constraints, unresolved regulatory disputes are also weighing on investor sentiment.

The prolonged suspension of dual-listed counters such as Old Mutual and PPC remains a significant concern for foreign investors.

Fincent said the stalemate sends negative signals to international markets.

“The continued suspension of Old Mutual and PPC remains a red flag for foreign direct investment,” the brokerage said.

“It signals that historical grievances over currency benchmarking still outweigh the technical requirements of a modern, dual-listed exchange.”

Policy uncertainty may further complicate the outlook.

Fincent Securities analyst Kudakwashe Taimo said significant structural reforms would be necessary before pursuing full dedollarisation.

“Currently, the Zimbabwe Stock Exchange has no dual listings, whereas the VFEX has successfully positioned itself as a platform for cross-border and multi-listed securities,” Taimo said.

“Absent regulatory alignment between the ZSE and VFEX — particularly around currency fungibility and settlement frameworks — dedollarisation could introduce operational and liquidity challenges similar to those currently affecting the ZSE.”

Morgan & Co senior analyst Tafara Mtutu said any form of uncertainty could influence investment decisions.

Since its launch in 2020, the VFEX has steadily expanded, attracting about 10 companies migrating from the ZSE, while several others have delisted altogether.

At its peak, the ZSE hosted more than 60 listed companies. Today, the number of active counters has fallen to roughly 40.

For market watchers, the message is increasingly clear.

Unless structural issues surrounding liquidity, currency convertibility and regulatory alignment are resolved, Zimbabwe risks allowing its flagship exchange to slowly lose ground to the very platform created to complement it.