Nicola Mawson
JSE Group CEO Dr Leila Fourie is cautiously optimistic over South Africa’s economic and political future following the formation of the Government of National Unity (GNU) in mid-June and expects that investment demand to start increasing as sentiment improves.
Speaking during PSG’s latest Think Big episode yesterday, Fourie said the new government was “much more business friendly … because it’s focused on getting the economy growing across key areas such as electricity, logistics”.
Improved demand for investment from both local and international depositors would also lead to companies seeking to raise more capital.
The JSE, she said, was outperforming emerging markets and both the top 40 and the and All Share indices are up following the formation of the GNU. Fourie added that South African stocks are undervalued, especially considering positive dividend yields and price to earnings ratios, due to a historically low level of confidence.
Fourie said that investors needed to see concrete evidence of the “green shoots” currently being seen post the swearing in of the GNU.
“That said, this discount creates a great opportunity when investing since things are changing. The GNU has provided a trigger for rerating and enabling investors to take a fundamentally different view of the relative value of assets. We have seen signs of this improvement in government bond yields and also the strengthening of the rand. And this is really starting to show tangible results in our market,” Fourie said during the conversation.
Fourie also noted that outflows of investments had slowed post the elections. In May, for example, R32 billion in capital left the country compared with last’s year’s R12bn. However, June only saw R5bn in outflows compared with R20bn in 2023, and the picture continues to improve with less money leaving South Africa, she said.
July saw a quarter of the amount in 2023 leave, while August’s outflow was 50%, Fourie said. “Since the election, we've seen a quite dramatic and steep decline in the outflows in the equity market.”
Fourie added that more companies were engaging with the bourse with a view to list. On June 26, Rainbow Chicken listed on the JSE’s main board as its primary home after it was unbundled from RCL Foods. This was the second listing in two days and followed that of medical Cannabis Cultivator, Cilo Cybin.
Fourie said that, as the economy became healthier, there would be demand from companies to raise capital, which will result in additional listings.
She also pointed to structural factors and a shifting policy environment that have also resulted in delistings, with a greater demand for liquidity as pension savings have shifted to more of a defined benefit fund environment, which requires daily pricing, also being a driver of shifting markets.
“So, these factors all remain part of the equation, and they are driven by structural features, and quality environments. But better economic performance will certainly encourage capital raising on the capital and public markets.”
The JSE had previously predicted that as many as 10 companies would join the bourse this year after only three listed last year. AmaranthCX Director Paul Miller wrote in January that “2023 was the worst year for new equity listings since we began tracking the statistics in 1994”. Twenty-seven companies delisted in 2023, 24 on the JSE and three when the ZARx closed.
Miller also noted, at the time, that foreign companies with secondary listings on the JSE accounted for about 65% of the gross market capitalisation of the bourse.
BUSINESS REPORT