24 April 2018
Publication: Business Day
Date: 24 April 2018
By: Johan van der Merwe
For the country to go forward, economic growth must remain the holy grail for all South Africans. The importance of job creation, wealth creation and wealth redistribution cannot be overstated in this regard.
Of the many tools SA has at its disposal, the workings of its capital markets, and in particular the country’s stock exchanges, should feature strongly.
Seeing that economic activity must be funded in some way or another, the country generally looks to its capital markets as providers of capital for this purpose. SA’s stock exchanges, such as the JSE and others, are a key feature of its capital markets and facilitate an important process of wealth creation and redistribution.
In about the past year, three new stock exchanges came into being in SA. This was a significant development as the JSE has been operating since 1887 and enjoyed a period of about 130 years as the only stock exchange in SA. It has won many international accolades and is widely acknowledged as being one of the best-regulated stock exchanges in the world — something everyone can be proud of.
"Many JSE-listed entities should at the very least have this conversation around their boardroom table: is there value in a secondary listing on another local exchange? It is something they should decide on its own merit."
Some of the new exchanges seek to convince private companies to list, which is good. Others have made public pronouncements to take the JSE head on in the secondary market in an effort to lure companies to secondary list on them. This is often misunderstood by many JSE-listed companies to mean they have to choose between being listed on the JSE or elsewhere, which is incorrect.
The recent front-page headline in Business Day about financial services group Sanlam listing on A2X while keeping its listing on the JSE is one that participants in capital markets should take note of. It is a significant development in that it clearly demonstrates that value, for most if not all Sanlam’s stakeholders, is to be created with a secondary listing on A2X.
Many JSE-listed entities should at the very least have this conversation around their boardroom table: is there value in a secondary listing on another local exchange? It is something they should decide on its own merit.
International academic literature on the benefits, or lack thereof, of multiple listings is widely available and some of it certainly makes for interesting reading.
Dual or multiple listings of a particular share are quite a common phenomenon internationally. Locally, South Africans may not have been exposed to the same extent.
One should look at what SA’s various exchanges offer and how these best fit in with one’s particular business.
In this regard it is worth mentioning that African Rainbow Capital, the black empowerment investment holding company of which I am co-CEO, has made a deliberate play for A2X by becoming a 20% shareholder in the exchange.
Not only are we confident about the quality of the A2X leadership but are also excited about the likely direction of SA’s capital markets.
An increasing number of people are benefiting from wealth creation and SA is also becoming more efficient at redistributing wealth.
Simply put, more South Africans will become part of what has become known as the formal economy through a pension, insurance or savings product they may purchase to provide for themselves and their loved ones in future.
Stock exchanges facilitate this process and make it a reality.
Interested parties currently listed on the JSE can determine for themselves what the A2X value proposition is in terms of how a secondary listing can benefit their shareholders — there is no need to sing their praises. But what is worth emphasising is how driving down costs improves market efficiency, which in turn grows the pool of potential investors among which shares can be traded.
For obvious reasons this is significant: it is good for the liquidity of the share and brokers have the choice of where to trade the dual-listed share. This helps with price discovery and price formation as bid and offer spreads are narrowed.
Everyone stands to benefit from this. Think of having your share listed on more than one exchange as having the option to go to more than one store to buy what you need, facilitating the opportunity for investors to shop around.
This also gives the listed entity access to capital as it draws more investors.
Economic growth remains a high priority for all South Africans. The country seeks to achieve a higher growth path. Its stock exchanges are but one instrument to help it get one step closer to that goal.
• Van der Merwe is the Co-CEO of African Rainbow Capital, a leading broad-based black economic empowerment investment holding company.