Sunday World (South Africa)

JSE celebrates 135 years, but delisting trend hits bourse hard

Exchange loses 25 companies a year on average

- By Kabelo Khumalo and Bongani Mdakane

The Johannesbu­rg Stock Exchange (JSE) this week marked its 135th year of existence. Since being launched in 1887, the world-renowned bourse has grown to be the largest stock exchange in Africa and the 19th largest stock exchange in the world by market capitalisa­tion.

However, the JSE marks the milestone in a tough year, with many companies delisting from the exchange, and many more expected to follow suit.

Having started off 2022 with 332 listed companies, this year is looking especially bad with 18 companies having already delisted and at least another 14 delistings under way. Add to this the 16 or so distressed companies that are suspended from trading and which are almost certain to delist at some point, the accelerati­ng impact of delistings is clear.

The bourse also has 94 listed Exchange Traded Funds (ETFS), over 2000 bonds listed, 55 sustainabi­lity bonds on the sustainabi­lity segment with an overall market capitalisa­tion of more than R20-trillion.

Asset and wealth management business Anchor Capital’s CEO Peter Armitage said the JSE should be worried about the huge number of companies delisting as it means less business for the JSE and a smaller financial market for South Africa. He said he expected more companies to leave the JSE. “The valuation achieved by particular­ly smaller companies is less than what is achieved in private.”

One of the criticisms levelled at the JSE is that it has been largely an institutio­nal market that lacks deep penetratio­n by retail customers.

“The JSE is predominan­tly an institutio­nal market by volume, although there are increasing­ly more retail customers. I believe a player like Easy Equities has over one million retail accounts. Growth in the SA economy, with subsequent company profit growth, is the best advertisem­ent, but the JSE has no influence over this.”

Institutio­nal investors trade and invest in such massive quantities that they receive special treatment, such as much lower fees per transactio­n, while retail investors are individual­s using their own money to invest, for the sake of their own personal financial goals.

Retail investors use their own resources and knowledge to build a trading and investment strategy, while institutio­nal investors may have thousands of employees and access to vast pools of data and sophistica­ted analysis tools.

Andrew Bahlmann, CEO of corporate advisory firm Deal Leaders Internatio­nal, said in 1999 the JSE had 811 companies listed on the main board and now has about 288 companies.

“The JSE is on a seven-year losing streak with on average 25 companies a year delisting across all stock exchanges. Put another way, the JSE has 18% fewer listings than it did seven years ago. However, delistings from public markets is a global phenomenon, and the trend has been visible for a decade with stock markets around the world shrinking, as badly as the JSE, if not worse: the Luxembourg bourse has 55% fewer listings, the Deutsche Börse 36% fewer, the Swiss 22% fewer, and the London Stock Exchange 21% fewer,” Bahlmann said.

He added that public capital markets in general had a structural problem in that the big institutio­ns dominated the market and typically only invested in the largest 80 to 100 listings.

“This means new companies cannot get finance, while existing companies experience very poor ratings. In this environmen­t, private capital is seen by entreprene­urs as superior.”

He also expects the capital flight from the JSE to continue.

JSE CEO Leila Fourie said there were multiple factors driving the number of listings and delistings on a stock exchange, such as the macro environmen­t and investor sentiment.

“We are currently operating in an economic environmen­t, locally and globally, that is deeply challenged and complex and less than ideal for IPO’S. Also, we have seen a number of delistings driven by corporate actions and lower liquidity in the small capitalisa­tion market.

“The JSE has embarked on initiative­s to grow the number of listings in the equity market. We have recently announced amendments to our listing requiremen­ts to cut red tape. The amendments are aimed at improving the competitiv­eness of the JSE and making it more efficient, fair, transparen­t and attractive to issuers and investors.”

Fourie added that the JSE is continuous­ly reviewing its listing requiremen­ts to ensure it is fit-for-purpose and relevant to prevailing market conditions.

“We also continue to find ways to increase exposure of small caps companies.”

Between 1900 and 2016, the annualised real return on South African equities was 7,2%, beating 23 other countries like the US, the UK, Germany and Japan, according to a study by the Credit Suisse Research Institute and the London Business School.

Delistings from public markets is

a global phenomenon

In 1999 the JSE had 811 companies listed and now it has about 288

The JSE has embarked on initiative­s to grow the number of listings

 ?? / Gallo Images ?? The Johannesbu­rg Stock Exchange this week marked its 135th year of existence.
/ Gallo Images The Johannesbu­rg Stock Exchange this week marked its 135th year of existence.

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