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Arqaam shuts SA office as brokers cut coverage

Profit margins for equity trading companies that offer research have been squeezed.

Arqaam Capital is closing its South African office, a person familiar with the situation said, as the Dubai-based investment bank joins other brokers paring back operations in the continent’s financial-markets hub.

The company, which opened an office in Johannesburg in 2014, said Monday it was ceasing research coverage in South Africa, according to a note to clients seen by Bloomberg. Customers haven’t yet been informed that the office, which employs about 17 people, is closing, the person said, declining to be identified because an official notification on that hasn’t been sent out.

Profit margins for equity trading companies that offer research have been squeezed in South Africa and other markets by the cost of MIFid II regulations, the growth in passive investing and a fall in trading volumes. It also comes amid an economy that is struggling to expand, with gross domestic product shrinking for a second quarter this year in the three months through September.

The shutdown by Arqaam, which focuses on emerging markets, follows an announcement by Macquarie Group Ltd. in October that it’s closing its cash-equities business in South Africa. Deutsche Bank AG’s South African unit has made significant job cuts, while Credit Suisse Group AG has also reduced its presence in the country. Citigroup Inc. has been leaving some equity research posts vacant and moving other functions, the Business Day newspaper reported last month.

“Its a tough environment,” said Peter Koutromanos, CEO of Johannesburg-based Avior Capital Markets. The reduction in research coverage “is bad for transparency,” he said. “It’s bad for liquidity and price discovery.”

A call to Arqaam’s corporate communications office in Dubai, where it’s a public holiday Tuesday, wasn’t answered. Jaap Meijer, Arqaam’s managing director of equity research in Dubai, didn’t immediately respond to a request for comment sent by text message.

© 2019 Bloomberg L.P.

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In 10 years time South Africa will be an afterthought and the ANC will still be to fix the things they broke post-1994 with bailouts, BEE and cadre deployment. The (not so bright) future of this country has never been clearer.

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