Zimbabwe’s dollar-only stock market is gaining rapid momentum. Market analysts now say the Victoria Falls Stock Exchange could surpass the century-old Harare main market within two years. This shift reflects deeper changes in investor behaviour, currency dynamics and sector composition.

VFEX opened in 2020 to provide a dollar-denominated trading platform. The aim was to attract foreign capital and shield investors from local currency volatility. The market has expanded quickly. It now hosts a growing number of listings and has built market depth in a short time.

A key driver of VFEX’s growth is the dominance of gold companies. Several large mining firms listed in Victoria Falls have seen strong gains. Rising global gold prices and robust production have pushed valuations higher. Mining stocks now represent a large share of VFEX market capitalisation.

By contrast, the Harare main market still trades primarily in the local currency, ZiG. Many local companies remain listed on that exchange. However, investor appetite for ZiG assets has weakened. Liquidity in ZiG-denominated stocks has declined as investors seek protection from inflation and currency instability.

Institutional and retail investors are moving capital into the dollar market. They see VFEX as a hedge against exchange rate risk. This shift is visible in trading volumes and inbound investor interest. Increasing liquidity on VFEX has made it more attractive for large trades and for institutional allocation.

The prospect of VFEX overtaking the Harare market raises strategic questions for companies and regulators. Some blue-chip issuers could consider migrating or issuing new dollar-denominated instruments. Such moves would give those firms access to deeper pools of dollar liquidity and to investors who avoid ZiG exposure.

Regulators face a delicate balancing act. They must support market development while safeguarding the integrity of both exchanges. Policy clarity will be essential to prevent market fragmentation. Clear listing rules, transparent reporting standards and consistent currency policies will help maintain investor confidence.

Capital controls and foreign exchange policy also matter. When the macro environment is uncertain, capital tends to flow to hard currency assets. If the monetary policy framework stabilises and local currency confidence improves, some funds may return to ZiG assets. For now, the trend favours dollar listings.

Market structure is another factor. VFEX benefits from international investor access and clearer dollar pricing. It also enjoys the psychological effect of dollar valuations, which many investors view as more stable and predictable. In addition, VFEX’s smaller number of listings concentrates investor attention and can amplify price moves.

There are risks to consider. Heavy concentration in mining exposes VFEX to commodity cycles. A reversal in gold prices could trigger sharp revaluations. Migration of large issuers from the Harare market could reduce liquidity and market depth there, harming local investors who prefer or must trade in ZiG.

Corporate governance and disclosure standards will influence outcomes. International investors expect strong governance practices. Companies listed on VFEX will need to meet those expectations if they wish to attract and retain international capital. Regulators must enforce standards consistently across both exchanges.

The rise of VFEX also has broader policy implications. If the dollar market becomes dominant, monetary and fiscal authorities will need to consider the systemic effects. For example, capital market development in dollars can alter the transmission of policy rates and affect government borrowing strategies.

Companies and asset managers will adjust strategies as the market evolves. Some firms may issue dollar bonds or dual-list to tap both markets. Asset managers may rebalance portfolios to include more dollar-denominated equities. Pension funds and insurers will reassess currency allocations to protect real returns.

For investors, the message is clear. Diversification and currency risk management are now essential. Investors must assess sector concentration, commodity exposure and the governance profile of issuers. They should also monitor macroeconomic indicators that influence currency stability.

In summary, VFEX’s rapid growth is reshaping Zimbabwe’s capital market landscape. The dollar bourse benefits from strong mining valuations, investor demand for hard currency assets, and improved liquidity. Regulators and market participants must act prudently to ensure the shift strengthens the financial system as a whole. If managed well, VFEX could become a leading regional platform for dollar-denominated securities while supporting broader capital market development in Zimbabwe.

Source ~ Bloomberg