With 22 de-listings in 2023, the JSE is once again under sharp focus, especially as economic constraints remain elevated for companies and investors and as the usual uncertainty ahead of elections entrenches, leaving fund holders and managers worried and scrambling for better alternatives elsewhere.
The 22 JSE de-listings last year sharply contrast with only three new listings - Premier Foods, Primary Health Properties and Copper360 - on the bourse during the same year.
William Gumede, an Associate Professor, School of Governance & former Convener, Political Economy, University of the Witwatersrand, Founder of the Democracy Works Foundation, has also stressed the plummeting value in terms of investment on the JSE, with the market losing as much as 22% in US dollar terms since 2018, negatively contrasting with Nasdaq 100 which gained 147% and the S&P 500, which is up 75% over the same time-frame.
Analyst Simon Brown said this has brought the local equities market under focus, especially ahead of elections later this year and as economic headwinds continue to swirl around South African listed companies.
The de-listings have been a global phenomenon, but have been far worse on the JSE given its smaller size compared to global bourses, according to Brown.
Nonetheless, reasons for the current wave of de-listings from the JSE “are manyfold”, Brown told Business Report. These include “poor valuations”, which make it attractive for companies to de-list and go private.
“Lots of private equity money is adding to this. The latter maybe drying up in the high interest rate environment,” Brown explained.
With a drought of new listings, it has been impossible to replace top companies that are leaving the JSE. The ability of private equity portfolios to hold longer and bring opportunities to list anywhere other than home countries has also made de-listings attractive.
In spite of this, JSE CEO Leila Fourie said earlier this month that most of the de-listings had been with small- and medium-sized companies.
However, in addition to the de-listings, South Africa has also been hit by domicile migrations, with Anglo American and BHP among companies that have re-domiciled away from South Africa.
Other analysts say, “High costs, red tape, and a weak economy” are also pushing companies away from the JSE and from South Africa, with the future of the South African bourse now hinged on the government’s ability to provide a supportive environment conducive for corporate flourishing and enhanced equities investment.
Ryan Hill, the head of fundamental sales at Absa Corporate and Investment Banking, said by email, “Already, there has been ‘an overall reduction’ in offshore investor exposure to the JSE as well as a reduction in the number of listed entities.
“At the same time we have also seen falling liquidity on the JSE over the past 10 years,” Hill said.
There is also a weaker rand to content with for listed companies, especially with the unit touching deeper lows this week. The rand traded around R19.14 to the dollar in afternoon trade on Tuesday.
Smalltalkdaily analyst Anthony Clark said the rand was likely to sag further as “electioneering machinery, rhetoric and jingoism” increases.
South Africans would take to the polls later this year at a time confidence in President Cyril Ramaphosa’s administration is plummeting.
A weaker rand would benefit JSE-listed companies with foreign currency earnings.
“JSE-listed companies with substantial offshore earnings” in pounds will gain, said Clark.
“Companies that immediately come to mind are Argent Industrial where 75% if its H1 (first half) profits came from offshore, Invicta has growing businesses in the UK and Europe. Both Agent Industrial and Invicta have March year-end financial period stocks so I'm watching the rand versus pound carefully,” he added.
Brown said elections “create volatility ahead of them as the politicians and their rhetoric” gets thrown around. Moreover, the outcome of the 2024 South African poll could also create “short-term volatility” which would ultimately dent investor sentiment in the JSE.
As if this was not enough JSE companies and investors have even bigger worries -- ballooning cost bases.
Roy Topol, a portfolio manager at Cratos Asset Management, said in an interview that issues with Eskom and Transnet had created major issues for South African companies.
“Broadly speaking these issues have curtailed output and increased costs for corporate South Africa. So, it impacts profits directly, but the failure of these critical services has also damaged investor confidence,” he said.
Shoprite for example was spending nearly R100 million per month on diesel. Red tape on the issuance of work visas for expats employees and management is also weighing down sentiment while the mining sector is afflicted by an absence of exploration activity and potential.
“Mining applications not being approved. More broadly foreign investors are just not convinced by the government and policy so invest elsewhere reducing valuations on our market,” said Brown.
However, there was “hope that a coalition with a business-friendly political party may provide some urgently needed policy intervention”, added Topol.
Although it was highly likely that South Africa’s 2024 election will give rise to a ruling coalition, Hill said this could “in turn slow the pace of required reforms”.