The world is changing fast and to keep up you need local knowledge with global context.
The JSE has plans to fire up SA equities after a period in which companies have been delisting from the JSE in their droves and investors have been looking for stock market opportunities elsewhere in the world. Can the stock exchange reverse the trend? In this interview, Sam Mokorosi – Head of Origination and Deals – sets out JSE plans for issuers as well as investors. Independent financial advisors are being encouraged to point their clients towards the stock exchange. The JSE is aggressively trying to attract more companies from elsewhere in Africa, Middle East, Eastern Europe and South-East Asia. It is also hoping to roll out a private equity platform, using blockchain-enabled technology, in six months, with opportunities for retail investors. In addition, it is working on data analysis innovations and new products to help issuers and investors. Jackie Cameron
Sam Mokorosi on JSE delistings:
In 2019, we had 24 delistings. In 2020, we had 20 delistings. We are hearing rumblings of additional delistings in 2021. But at the same time, we did have five new listings last year. But importantly, we also had 67 billion worth of capital raise – secondary capital raise – through rights issues and other such methods in 2020. So that is also important to note.
On lack of investment opportunities on the JSE:
We know that economic growth has been slow for at least 10 years. We know that the market valuations have been tight for at least about 10 years. So that creates the challenge for companies being listed on the exchange – specifically smaller cap companies. As you rightly say, that’s where we seeing some liquidity challenges.
To address that, part of our Covid relief was to reduce trading on smaller companies – trading fees – also to reduce fees on capital raises for smaller cap companies. So that’s been one of the ways that we’ve been doing that. In the long-term, we need to create energy and excitement around our smaller caps. So we are engaged at the moment with some entities to start increasing the amount of research that’s available on smaller cap companies.
One of the ways we are doing that, is [that] we [are] in discussions with the Investment Analysts Society at the moment, to see whether we can put together a fund that supports research into smaller companies, because the larger research houses don’t find it as lucrative, to put it bluntly, to carry out research on that.
On the economy and JSE delistings:
That’s been a challenge. So what happens is that, companies show difficult earnings. Then, those difficult earnings feed into limited share price increases and then the company also struggles to raise capital. All of that then feeds into a challenge around what’s the benefit of being listed. So I think, until we we can get the economy up and going again, it’s going to be a difficult environment for companies.
On initiatives to fire up the JSE:
I think we’ve seen some interesting innovations and we welcome that kind of innovation. Naspers or Prosus might be attractive for retail investors, but that big chunk there is something that might be prohibitive to the investor. So we welcome opportunities that various stockbrokers have offered to the market.
Even some innovative products that allow investors to get access to ETFs and ETNs, to offshore stocks – such as your big Fangs [and] big IT companies in the US. So we welcome all of those innovations. Certainly, we enjoy working with our ecosystem, to make those innovations as quick and easy as possible to get to the markets.
On what the JSE is doing to try and bring other African companies onto the stock market:
Maybe just to take a step back in terms of our global footprint, we have dual listings and inward listings from the UK – I think [it] is probably our leading country. Some from the US, a lot in Australia as well. So I think those three markets [have] a very kind of similar regulatory type of environment and philosophies. There’s been a lot of synergies there.
One of our activities is then to say, we certainly need more companies from the African continent – and we are in the middle of [a] virtual roadshow and discussions with our colleagues at various stock exchanges across the continent. We are also in the early stages of discussions with colleagues in the Middle East, colleagues in Southeast Asia and even looking at Eastern Europe.
Eastern Europe with the property environment. We’ve seen a lot of issuers very active in that Eastern Europe property market. So we’re looking to say, ‘can we have some of those issuer’s do inward listings into the South African space?’ All of these are not quick and easy solutions, but one of the things that we certainly are working on is a mix of Asian, African, East European, Middle Eastern companies coming to inward list onto the JSE.
This flows into our larger strategy around internationalising our market even more. Asia – specifically China – is a target region. So what we’re saying is, the first step to introducing our markets to Chinese investors is information supply. Our arrangement with Shanghai is that for a period, we will make live data available to the Shanghai stock market, so that their brokers can start to get to know our stocks and our market and hopefully start to trade. Once you can do that, we can then start to generate the kind of activity that we see between our stock exchange and London, for example – where there is that long established information flow and deep knowledge of each other’s markets.
On whether there will ever be a Chinese company (or a company like Apple) listed on the JSE:
That would be really fantastic. In terms of somebody like an Apple, using exchange traded notes – RMB/FNB has listed notes that replicate the performance of Apple, Netflix and Amazon, I think, as well. That’s one way. There’s also a product called depositary receipts, and what you can do is you can have unsponsored depository receipts – which some of the banks have been working on.
So essentially, you can have a product that again replicates the performance of Apple, without Apple having to give permission for a listing on the JSE. So those are really exciting. But it’s such a balancing act, all of these things. You also risk crowding out the opportunity for our smaller caps to attract an audience when you have so many great opportunities – Chinese companies, companies from Singapore and Silicon Valley.
So that’s why the private markets platform is so important, that as the JSE gets a more international flavour, you want to make sure that there’s a place for South African inc. and South African SME’s to still participate in the capital markets.
- The JSE needs to innovate as delisting flurry continues
- Shrinking JSE options drive offshore need
- Taking stock: JSE reaches record high; Naspers; Rebosis; Sasol
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.