Financial Resource

It’s clear that there is increasing appetite for Africa as an investment destination. Both investment flows into the continent’s markets and the number of funds focused on the region are increasing as low yields in developed countries prompt investors to search for high returns in previously unexplored emerging markets. This is good news for the continent.

Investors considering putting funds into a new investment destination look for numerous things including: a sound economy, companies with promise and, for listed investments, a stock exchange with regulatory and operational standards. Exchanges must have predictable sets of rules, fair operating schemes and properly operating systems. If any of these factors aren’t present, another investment destination may be found.

MAJOR HURDLE

A major hurdle for investors wanting to put money into Africa is the difficulty involved in transacting on a large number of small exchanges. It is a disincentive to investors to trawl through different standards to establish whether these are acceptable. Particularly for multinational institutions, the investigation required into each market is not always worth the effort, given the low number of potential investment opportunities and the relative high costs of executing trades in these markets.

While many African markets are small, economies need those local markets as part of well functioning and mature capital market systems. One way to achieve development of a mature capital market system is to have one integrated exchange for the continent.

In theory, a single stock exchange would be good for Africa and could attract more investment in less developed markets. There have been some calls to pursue such integration.

However, there are other ways to achieve the same goal, such as providing opportunities for top African issuers to list on their home exchanges and dual list on a globally recognised exchange. Another is technologically linking exchanges and routing orders to one another. JSE is working on both of these.

A discussion on capital markets at the Africa Forum of the World Economic Forum in May 2010 recognised that although many African stock exchanges have outperformed those in developed markets during the downturn, many of these financial markets are not yet sufficiently large or developed to cater to the region’s financing needs.

GATEWAY TO INVESTORS

JSE is positioning itself as a gateway to investors worldwide wishing to access opportunities throughout the African continent and has developed the strategic links and technological capacity to do so. JSE’s Africa strategy is in line with its commitment to various Africa-centric business and stock exchange organisations.

We have created an Africa Board, a listing venue for companies domiciled in Africa or with assets on the continent. Companies listed on the Africa Board may well be listed elsewhere in Africa and have a listing on the JSE. For issuers, a listing on the board increases liquidity in their shares, gives increased visibility and access to a liquid, cost effective and easily accessible exchange with extended trading hours.

For investors, the board offers access to African stock on a secure, cost effective and easily accessible trading platform, through an exchange that is World Federation of Exchange (WFE) accredited. It offers guaranteed settlement of all central order book trades and globally accepted standards of corporate governance.

Second, we have launched a series of indices which reflect issuers listed in countries across the continent to enable investors to track the performance of top issuers across the continent. Third, we are developing a hub and spoke model of technologically linking exchanges and routing orders and data to and from African exchanges.

And fourth, the exchange is working to forge closer relationships with African exchanges to help develop new businesses and markets. This includes working with various exchanges on the continent to ready them to be admitted to the World Federation of Exchanges.

JSE continues to create joint initiatives and to foster long-term relationships and business entities in South Africa, the SADC and the continent in order to increase interest and awareness in the local financial markets and to highlight the continent’s financial opportunities.

The debate about the development of African markets and the call for integration comes at a time when developing markets are under the spotlight as the global financial crisis pushes investors to look for investment returns elsewhere to offset sluggish returns in the slow-growing developed world. An increasing number of institutions are finding investment bargains in lesser known markets on the continent.

The time is therefore appropriate to make use of this momentum and interest to make investment in Africa more ‘mainstream’ rather than a temporary alternative, with the aim of attracting longer-term and more consistent investment flows. JSE, which is home to companies whose combined value makes up about three quarters of all those listed on exchanges across the continent, believes that it has a workable solution to this while contributing to the development of markets within their own economies.

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