In 2002 there were 485 companies listed on the JSE. Today, there are only 354. The 10 largest of them make up more than 50% of the JSE’s entire market capitalisation.
This drop in listings is not unique to the local market. With the significant exception of China, many exchanges around the world have experienced a similar trend.
It’s not surprising then that the JSE’s new CEO Leila Fourie is looking at new approaches to grow the market. Speaking at the Raging Bull Awards in Cape Town this week, Fourie said that this is has to be one of the ways in which the address the cost pressures that it is facing.
Notably, a lot of her focus in trying to achieve this is looking outside of the country’s borders. She noted that the exchange is investigating ways to “readjust and refocus” its global integration.
Eyes to the East
“Having been overseas, I have seen that the growth node is in Southeast Asia,” Fourie said. “We have a lot of work to do to establish our presence and national agenda there.”
Significant steps have already been taken in this regard, particularly in relation to connectivity. The intention is to encourage more inward investment from China in particular.
“We are in the final stages of signing a deal with the Shanghai Stock Exchange where we will provide our market data for free for two years,” said Fourie.
“We will be following that up with a roadshow to engage liquidity providers and participants to contemplate inward flows, which we feel will likely be more counter-cyclical and with a different risk appetite and a longer line of vision than we see from developed markets,” she added.
The opportunity is obviously enormous. There is a vast amount of wealth in China, and the country’s savings rate is one of the highest in the world.
However, while Fourie didn’t say so, the challenge will be to show what the value proposition is for Chinese investors.
Why should they look to invest on the JSE as opposed to anywhere else? In a world where there is global competition for capital, the JSE needs to have something noteworthy to sell.
In addition to looking to attract these additional inflows, the JSE is also exploring ways to attract more cross-border listings.
“We are going to actively be looking to create inward listings from foreign centres such as Mauritius, Southeast Asia and the rest of Africa,” Fourie said.
“We need to have more foreign listings on our exchange so that South African investors can experience foreign underlying exposure.”
While this might increase the options for local investors, and potentially grow activity on the exchange, it does raise the question of how this would benefit the South African economy. If local investors are providing capital to foreign companies, that is money leaving the country rather than being productive here.
In an environment where new local listings are proving difficult to find, however, the JSE has to consider its alternatives.