The JSE is withering away

The JSE has seen a spate of delistings over the past few years – a trend projected to get worse – and this jeopardises the bourse and South Africa’s economy.

This is the warning from AmaranthCX director Paul Miller, who told Kaya Biz that his organisation anticipates at least 27 delistings from the JSE this year.

He added that there will likely only be seven new listings on South African exchanges, of which four will be on the JSE. 

This is the worst year for new listings since AmaranthX’s records began in 1990. 

“I suspect if you went back further, it looks like this year will be the worst year for new listings in half a century,” he said.

Delistings are normal and take place in any economy. However, the problem in South Africa is that they are not being replaced with new listings. 

Miller said there are many reasons for this, and discussions around this topic often only focus on one or two reasons.

“People are quick to blame the JSE, saying its regulations are too onerous or its costs are too high,” he said.

“Alternatively, they are quick to say that it’s an international trend, and when the interest rate cycle turns, we’ll see people returning to the market.”

“Yes, those are important, and they’re not untrue, but they are only a tiny part of the story.”

Since the global financial crisis, South Africa has seen an exit from the smaller end of the market, i.e. the 200 companies outside the top 100 large institutions on the JSE.

“We’ve also seen massive consolidation in institutional investors, and the institutions are managing their funds with liquidity and size in mind,” he said.

“So they’re only interested in investing in perhaps the top 80 or, if you’re lucky, the top 100 companies. There’s very little interest in anything outside of that.”

He said another issue is that the nature of South Africa’s stockbrokers has completely changed. 

“They’ve become wealth managers, they earn annuity asset management fees, and their investment strategies now mimic the same investment strategies of the large institutions,” he said.

“So we’ve got really nobody to invest in the 200 companies outside the top 100.” 

AmaranthCX director Paul Miller

In addition, Miller said South Africa has not seen significant primary capital raising in years. 

He said the country has not seen a significant public offer of shares by a company since 2012, and the last true initial public offering (IPO) was Telkom in 2006.

“South Africa has a public capital market that punches way above the weight of the underlying economy,” he explained.

“We’ve got the 20th largest public market and the 40th largest economy. So here we have a real gem, a real material advantage for the development of our country.” 

“And I believe our policymakers don’t understand the problem, and they’re allowing it to wither away.”

He explained that the problem is not that the JSE will eventually no longer have any listed companies if this trend continues.

The top 100 companies will always be there, but the country is on a trajectory that will see only 100 companies listed on the JSE.

This means that, in the next ten years, South Africa will go from a market that had 800 companies 30 years ago to a market with only 100 companies.

He said this does not only affect South African inventors, as the JSE serves a societal purpose.

“A public company with proper governance with a listed share trading on the stock exchange is providing a public good to pension funds,” he explained. 

“It provides somewhere where pension funds can put our money while we’re working so that we can save and provide for our retirement.” 

“And if we don’t have public companies listing their shares, we don’t have anywhere to put that money.”

Public markets also provide a means for growing businesses to mobilise capital.

“And sure, not all of them will grow to be in the top 100, but things will get built, things will get done, new factories, new farms, new mines, those need to be funded somehow.” 

“And historically, the public market has been the place to raise that money, and we’re giving up on it. It is withering before us.”