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The GNU and a segmentation project could revive the JSE

The GNU and a segmentation project could revive the JSE
Source: MSCI Barra Portfolio Manager; Momentum Investments Group
Neesa Moodley
By Neesa Moodley
22 Sep 2024
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The government’s renewed focus on growth could offset the stock exchange’s delisting trend and other challenges. 

Global delisting trends, the rising popularity of private capital and increasingly stringent regulatory and compliance requirements are just a few of the headwinds that the JSE faces.

However, initial market responses to the Government of National Unity (GNU) are already bearing fruit by stimulating capital markets, says JSE group chief executive Dr Leila Fourie.

Speaking to journalist Alishia Seckam at the latest PSG Think Big webinar, Fourie said the GNU was widely viewed as being more “business-friendly” because of its focus on growth in key areas such as electricity, logistics and even visas for skilled professionals. “This positive sentiment works hand in hand to drive market activity.”

David Lerche, chief investment officer at Sanlam Private Wealth, says one of the reasons for optimism is the expectation of increased competition between ministers resulting from the GNU’s formation.

“Ministers are likely to be driven to achieve more to demonstrate the value they can add – and this doesn’t apply only to the new parties in government such as the DA.

“In addition to healthy internal competition, we also expect an increased level of rivalry between political parties to motivate those in the GNU to deliver improved outcomes for the country in order to secure more votes in future,” Lerche says.

Global delisting trend


Reviving the JSE The number of listings compared to delistings on the Johannesburg Stock Exchange. (Source: MSCI Barra portfolio manager, Momentum Investments Group)



With a market cap of more than R20-trillion, the JSE sits firmly in the top 20 stock exchanges globally.

However, in addition to increased competition from newer exchanges such as the Cape Town Stock Exchange and A2X Markets, more than 100 companies have delisted from it over the past decade. The number of companies listed today is 50% fewer than 30 years ago.

Global stock exchanges are seeing a similar trend. According to the World Bank, between 2000 and now the number of listed domestic companies has declined by about 42% in Germany and 32% in the UK. In the US, about 2,200 domestic listed companies have delisted over the same period.

Fourie emphasises that structural forces and a shifting policy environment have also influenced the groundswell of delistings over the past two decades.

Sanlam Investments revealed this week that, as a significant shareholder, it had voted against the proposed delisting of Bell Equipment. It said “the offer did not represent the full value potential of Bell as the economic environment continues to recover”.

“We are observing a concerning trend where smaller companies are being bought out as they are poised for a turnaround and on the verge of realising significant growth,” says Andrew Kingston, head of equities at Sanlam Investments.

“It is important for investors to be wary of selling too soon, especially at a price that may not fully reflect their underlying value or future potential. As the economy improves, we are seeing more of these cases.”

Although IAB’s R53-per-share offer represented a substantial premium to Bell’s recent trading levels, Sanlam Investments believes that the timing and conditions of the offer do not align with the company’s good prospects.

Proactive steps


To address this shifting environment, the JSE has taken steps to future-proof the exchange. This month, the Financial Sector Conduct Authority approved a JSE segmentation project, which will split the main board into two segments – prime and general.

These will separately serve the needs of large and small companies by introducing a level of regulatory innovation to remove complexity and cost where possible. 

Read more: After the Bell: Will the JSE’s decision to split the exchange work?

Additionally, the secondary listings framework has been expanded quite materially over the past few months. Fourie says there were previously seven exchanges on the JSE Fast Track or dual listing process.

“We’ve since added others, including Tada­wul in Saudi Arabia, Euronext Amsterdam, Paris, Brussels, Dublin, Milan, Lisbon and Oslo,” she says.

However, Vongani Masongweni, a quantitative research analyst at Momentum Investments Group, points out that, although delistings are a natural part of market dynamics, it’s the imbalance between new listings and delistings that is the primary concern. “Although delistings have increased in recent years, the reluctance of new companies to enter the market appears to be the main issue.

“This imbalance is evident in the steady net decline in the number of shares entering and exiting the FTSE/JSE All Share Index (ALSI) since 2018,” she says, adding that without a steady stream of new listings, the JSE may face limitations in its ability to provide investors with a diverse set of investment opportunities.

Fourie says the move to expand the secondary listings framework aims to widen the scope for local investors to access multinational dual-listed companies.

Ma­­so­ngwe­ni concurs that this and other recent initiatives may prove to be the key for driving change.

“It is crucial to continue to monitor levels of net [new] listings closely. Without a reversal in the current trend, there’s a risk of being stuck in a stagnant opportunity set.

“Potential barriers to new listings may include regulatory hurdles, market volatility, investor sentiment and competition from other investment avenues. By identifying and addressing these challenges, the JSE can help to create a more conducive environment for companies to go public.”

Although the JSE remains focused on the core trading business, Fourie says, “expanding and diversifying our revenue sources protects us against the cyclicality of the trading environment and offsets our fixed cost base and the volatility of the trading revenue line that we’re facing”.

This non-trading business has grown more than 80% since the Covid pandemic and now accounts for 39.8% of JSE revenue.

In addition, she says, the JSE is expanding the scope of investment opportunities.

“We are also seeing continued growth in our debt space, particularly relating to sustainability and social and green bonds.” 

JSE five-year outlook


Looking ahead at the top priorities for the JSE over the next five years, Fourie says: “We have deep liquid capital markets and want to stay relevant. This includes focusing on basic hygiene factors, system resilience and cyber investments.”

She also highlights recent initiatives such as partnering with Amazon Web Services (AWS) to upgrade the BDA (broker deal accounting) system, which aims to reduce costs for market participants. This includes improving the delivery of real-time market data in the cloud, as well as the delivery of cloud proximity offerings by using AWS’s global infrastructure. Future collaborations will be centred on harnessing the power of its broad portfolio of analytics and AI services. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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