By Corrie Kruger
The JSE was formed in 1887 during the first South African gold rush. Following the first legislation covering financial markets in 1947, the JSE joined the World Federation of Exchanges in 1963 and upgraded to an electronic trading system in the early 1990s. The bourse demutualised and listed on its own exchange in 2005.
In 2003, an alternative exchange, AltX, for small and mid-sized listings was formed, followed by Yield X for interest rate and currency instruments. The JSE then acquired the South African Futures Exchange (Safex) in 2001, and the Bond Exchange of South Africa (Besa) in 2009. They now consist of five financial markets namely equities and bonds as well as financial, commodity and interest rate derivatives.
The number of companies listed on the JSE is rapidly decreasing over time and the number of listed companies has decreased from 776 to 334 in the past 30 years. Some people might question whether there is something wrong at the JSE as an institution.
The important factor to take into account is that many companies have taken over smaller companies, and the total market capitalisation of the market has grown substantially over the years.
The world economy consists of 193 economies, with the US being the largest.
Gross domestic product (GDP) is the monetary market value of all final goods and services made within a country during a specific period. GDP helps to provide a snapshot of a country’s economy and can be calculated using expenditures, production or income.
Despite South Africa ranking 38th in the world, based on the size of the GDP, the JSE is ranked substantially higher – 13th in the world in terms of market capitalisation, whereas we rank 34th in terms of GDP in the world, with a GDP of $386.73 billion (R5.87 trillion).
The JSE to a large extent reflects what goes on in our local economy. On our local front over the past few years, two main subjects have dominated the investment world. The first is our extremely poor economic growth. This may have resulted from an economy plagued by extremely high levels of corruption and badly run state entities, which led to a very high unemployment rate.
There was a mass exodus of companies departing the JSE, with no less than 42 companies doing so since 2019. The number of listings may have declined, but the average listed company is significantly larger today than it was 10, 20 or 30 years ago, even after adjusting for inflation.
The legendary stock broker David Shapiro is quoted stating the importance of identifying good companies with strong management teams and emphasises the importance of time in the market. If anyone wonders about the virtues of the JSE, they just need to look at the first company to have ever listed on the JSE which was DRDGold, and were listed in 1895. It remains listed on the New York and Johannesburg stock exchanges.
The company is a South African gold producer and a specialist in the recovery of the metal from the retreatment of surface tailings. DRDGold states that: “Our market capitalisation has stabilised after the astonishing year-on-year growth to June 30, 2020 to reflect an increase of 332 percent over the two-year period to June 30, 2021.
“The relationship with Sibanye-Stillwater adds an important new dimension to their strategy in that it provides an opportunity for intra-group growth by way of stronger alignment and integration.
“Sibanye-Stillwater is a global player that has built up a vast network in both gold and platinum group metals, and is now also venturing into metals used in the generation and storage of green energy”.
The company has reserves for the next 27 years of production. This proves the point that as new opportunities arise, good companies will take them up and just as good times do not last forever, so too bad times.
Corrie Kruger is an independent analyst.
*The views expressed here are not necessarily those of IOL or of title sites.
BUSINESS REPORT ONLINE