South Africa and Namibia

SOUTH AFRICA AND NAMIBIA SOUTH AFRICA $881.61 Bn $200.29 Bn Equity Market Debt Market 372 125 136% 260% 59% Capitalization Capitalization Number of Number of Domestic Total Equity Debt Market listed issuers Equity Market Market Cap/ Cap/GDP companies (bonds) Cap/GDP GDP 91,716,796,484 $2,127.21 Bn Equity Market Share Volume Traded Debt Market Total Nominal Traded NAMIBIA $138.37 Bn* $2.72 Bn 17% 953%* 19% Equity Market Debt Market 44* 10 Domestic Total Equity Domestic Capitalization Capitalization Number of Number of Equity Market Market Cap/ Debt Market listed issuers Cap/GDP GDP Cap/GDP companies (bonds) 193,100,874 41,296,398 Equity Market Share Volume Traded Debt Market Instrument Volume Traded *Includes dual-listings and ETFs. CFA Institute Research Foundation | 1 SOUTH AFRICA AND NAMIBIA • 1881: Kimberley Royal 1880s Stock Exchange established • 1886: Gold discovered on the reef • 1895: Durban Roodepoort • 1887: Johannesburg Stock 1890s Deep listed on the JSE Exchange (JSE) established • 1897: South African Breweries (SAB) listed on the JSE • 1901: Cape Town stock exchange established 1900s • 1904: Namibian Stock Exchange (NSX) founded 1910s • 1910: NSX closed • 1947: Stock Exchanges 1940s Control Act was passed in SA • 1963: JSE joins World 1960s Federation of Exchanges • 1990: Namibian independence from South Africa • 1992: NSX established (second time); First • 2000: JSE moves to corporate bond (SAB) issued 1990s Sandton; First ETF listed on in South Africa the JSE • 1996: Open outcry trading • 2001: FTSE agreement with ceases on JSE the JSE • 1998: JSE acquires South African 2000s • 2003: AltX is established in Futures Exchange (SAFEX) South Africa • 2006: JSE lists as a private company • 2011: Inward listings on the • 2009: JSE acquires the Bond JSE treated as domestic Exchange of South Africa listings • 2012: South African government bonds included in Citi WGBI • 2013: Millennium 2010s Exchange trading platform implemented on JSE • 2016: New exchange ZAR X opens in South Africa (to be followed by A2X, 4AX, and EESE) 2 | CFA Institute Research Foundation SOUTH AFRICA Adrian Saville Chief Executive, Cannon Asset Managers Professor of Economics and Finance, Gordon Institute of Business Science Ronak Gopaldas Director, Signal Risk The Johannesburg Stock Exchange (JSE) will be help diamond prospectors raise capital. During 132 years old in November 2019. The JSE cur- the mining rush of the 1880s, exchanges rently is the 19th largest stock exchange in the were opening in several towns, among them world, with a market capitalisation of more than Pietermaritzburg, Potchefstroom, Klerksdorp, USD1 trillion, as Figure 1 shows, and the larg- and Barberton (a small mining town that est stock market in Africa, helping companies opened two stock exchanges). raise capital on the primary and secondary markets and enabling investors to share in company On 3 May 1901, a stock exchange was also estab- growth. From modest beginnings, the JSE has lished in Cape Town to circumvent the trading evolved into a sophisticated, modern securi- disruptions caused by the Anglo–Boer War. As ties exchange, providing full electronic trading, the war ended, Johannesburg once again became clearing, and settlement in equities, bonds, and the primary trading location, thanks to the area’s interest rate products, as well as financial, com- gold rush and booming industrial activity, and modity, and currency derivatives. the Cape Town exchange was eventually closed. Indeed, the origins of the JSE are wrapped up in South Africa’s first stock exchange was the the gold industry. The increased demand to take Kimberley Royal Stock Exchange, which advantage of the gold boom from companies and opened in 1881—six years before the JSE—to investors alike saw the establishment of the JSE FIGURE 1. TOTAL JSE EQUITY MARKET CAPITALISATION, 2005–2018 South African Rand (trillions) 16 14 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CFA Institute Research Foundation | 3 SOUTH AFRICA on 8 November 1887, just one year after the dis- stating capital requirements for members and covery of gold on the reef. to define the parameters of broker conduct. In 1963, the JSE joined the World Federation of It is estimated that more than £200 million was Exchanges, the global industry association for invested in South Africa’s gold industry between exchanges and clearinghouses. 1887 and 1934, more than half of which came from foreign investors. On 7 June 1996, open outcry trading ceased, with the 108-year practice replaced by an order- Chambers and Company was the first company driven, centralised, automated system known to list on the JSE, in 1887. In 1895, gold min- as the Johannesburg Equities Trading (JET) ing company Durban Roodepoort Deep (DRD) system. listed on the JSE, and it remains the oldest listed company in South Africa. The country’s largest There are about 350 companies listed on the brewer, South African Breweries (SAB), now JSE main board today, as shown in Figure 2, but owned by Anheuser-Busch InBev SA/NV, listed the number has been in steady decline in recent in 1897. The exchange has since seen thousands years. It was as high as 485 listings in the early of listings, mergers, acquisitions, and delistings. 2000s and even higher in earlier years (more Among these epochs are several listing booms, than 800 in the late 1990s), but the number of including the Merensky platinum boom of the listings fell to 357 companies in mid-2019. In late 1920s, the 1968 listings boom, and the part, this decline is explained by pull factors, 1986–87 small-companies boom, which saw 293 where global markets have competed to host companies list in the space of two years, includ- listings; for example, Toronto is a favoured ing 102 listings on the JSE’s junior boards— destination for junior mining companies. Push namely, the Venture Capital Market (VCM) and factors have also been at play, with a decade of Development Capital Market (DCM) boards. weak economic growth dampening the domestic capital market appetite. As the market continued to grow, the Stock Exchanges Control Act was passed in 1947 to In 2003, the AltX (also known as the growth regulate the operation of stock exchanges by board) was launched as a platform for small and FIGURE 2. LISTINGS ON THE JSE, 2005–2018 Number 420 410 400 390 380 370 360 350 340 330 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 4 | CFA Institute Research Foundation SOUTH AFRICA mid-sized listings, and over the next five years, EQUITIES 76 firms listed on the AltX, with a handful ultimately migrating to the main board of the JSE. South Africa’s equity market nevertheless con- In 2005, the JSE launched YieldX to facilitate stitutes less than 1% of the world’s total equity trade in a broad spectrum of interest rate prod- market. The JSE entered into a joint venture ucts, with a focus on derivatives to encourage with London’s FTSE in 2001 to bring index liquidity and promote market diversification. reporting in line with international investment As such, YieldX became the JSE’s fourth elec- standards and aid market liquidity under the 2 tronic clearing and settlement platform, along- FTSE/JSE Africa Index Series. At the time, a side equities, financial futures, and agricultural lack of market liquidity prevented local trad- products. ers from obtaining company stock and led to skewed price increases when buying company As a company itself, the JSE has also undergone shares and outsized losses when selling. The col- significant changes. Having demutualised on laboration with the FTSE did much to improve 1 July 2005, the JSE was incorporated in South equity trading and led to the formation of the Africa as the JSE Limited, ultimately listing on FTSE/JSE indices, which remain in place today its own exchange one year later. and report across an extensive set of categories, such as market cap, tradability, industry, sector, In terms of the physical exchange, before the and style. JSE’s conception, trading took place in a miner’s tent, later moving to horse stables in central In terms of structure, the JSE’s main board lists Johannesburg. After many years of evolution well-established companies that want to grow from these early locales, it was in 2000 that their business through share sales and rights the JSE finally established itself in its current issues. Almost a fifth of companies listed on the premises at 1 Exchange Square, in the heart of JSE’s main board are dual-listed; primary listing Sandton, Africa’s “most valuable square mile.” companies are regulated by the JSE, while secondary listings are regulated in the companies’ After facing no competition for decades, the primary domicile—for example, the New York, JSE met a flurry of smaller competitors in London, Frankfurt, Australian, and Swiss recent years. South Africa’s financial market exchanges. regulator, the Financial Services Board (now the Financial Sector Conduct Authority, or The JSE segments its listed companies by the FSCA), granted approval to ZAR X in 2016 to super sectors in which they operate, including open an exchange aimed at servicing lower- resources (market capitalisation of ZAR3.2 tril- income individuals through its low-cost lion), financials (ZAR2.6 trillion), industrials model. Since then, other competitors have (ZAR7.8 trillion), and real estate (ZAR0.4 tril- joined, including A2X, 4AX, and the black eco- lion). In turn, these supersectors are made up nomic empowerment–focused Equity Express of subsectors, such as diversified miners and Securities Exchange (EESE). 2 Although dominated by a single large player, This venture included the implementation of the so-called free-float weighting methodology.

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