Foreign investors are the JSE's party-poopers

Published Apr 1, 2006

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As with any market that has experienced two years of phenomenal growth, it was only to be expected that somebody would throw a bucket of cold water over the JSE.

And sure enough, earlier in March,that "somebody" turned out to be international investors. These are the very people who have been so instrumental in hoisting our market ever higher on huge volumes as they developed a renewed love affair with emerging markets.

Few will forget the huge impact that "foreigners" had on the rand as it collapsed towards the R20-to-the-pound level in December 2001.

So profound was the effect that there were calls for a commission of inquiry, and a witch-hunt ensued.

Fingers were pointed at hedge fund activities, money market and equity traders, foreign exchange dealers and any candidate upon whom the responsibility for the catastrophe could be "fairly and squarely" planted.

As is so often the case, the pandemonium settled down and a balance was restored to a market that had clearly gone out of kilter. The rand began to recover its respectability and in so doing, it was transformed from being the poorest performing currency in the world to the best. Excesses and aberrations in all markets are smoothed out in the end, as the intrinsic value will always prevail.

Our stock market has performed very well for the past two years and for very good reason. The economy has been growing strongly and sensible economic policies have ensured that South African companies have produced solid results with growing profits and dividends.

This time round, foreign investors are also involved in the strong market, although they are not in a catalyst role.

South African markets are going up for all the right reasons and this has attracted the interest and confidence of foreigners, who want to benefit from economic growth in the African sub-continent.

The scale of foreign investment has been staggering when you consider Mittal's purchase of a majority stake in Iscor, Norisk's investment in Gold Fields (subsequently sold in a book-build exercise), the Barclays acquisition of 65 percent of Absa and Vodafone's recent purchase of Venfin.

There have also been a string of smaller deals in which foreign principals have bought out local subsidiaries, such as Bridgestone and Toyota.

While we enjoy international confidence and economic growth, we should anticipate continued growth in the market, albeit not at the pace of past years.

Goodbye Gencor

This week saw a conclusion to the long-standing asbestos issue that has forced Gencor to maintain its JSE listing.

Gencor has a long and distinguished career stretching back to 1895. It became a major mining house in the 1950s as a result of the merger of General Mining and the Union Corporation.

Gencor unbundled itself out of existence in 2000. It distributed its underlying investments - including stakes in Gold Fields, Standard Bank, Billiton and Impala Platinum - to shareholders, leaving a cash shell in place.

The curtain will come down on May 3 when Gencor's listing will be terminated from the JSE after shareholders receive a final distribution of 20 cents a share.

Safmarine and Rennies (Safren) shareholders will have been pleased with receiving a fourth liquidation of 13 cents earlier this month. The company is in voluntary liquidation and, unlike Gencor, elected to delist in 2000. As so long a time has elapsed since it disappeared off investors' portfolios, one just hopes that all shareholders will receive their cash.

Jse to list

The big news of March was the JSE's announcement that it will list on its own exchange on June 5 after a 10-for-one split that will see it have about 90 million shares in issue.

The announcement did not come as a surprise, because despite an active over-the counter-trade, it is beyond any doubt that a proper listing on a regulated market provides a more efficient method for accurate price discovery.

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