Established in 1887, the Johannesburg Stock Exchange (JSE) is the largest exchange in Africa and one of the top 20 exchanges globally.The JSE is a full-service exchange offering a range of investment products across sectors from both South African and international issuers. Companies can list on both a main board where they must meet financial and profit-based regulations, or on the AltX, which is a parallel market for well-performing small and medium companies that don’t meet the criteria for the main board.
State of the market
With the turbulent political and economic environment over the past years, beginning with the global pandemic and culminating recently in mid-March’s mini banking crisis within the USA, many global markets have experienced stagnation or downturn. The JSE is no exception as the market is down 9.4% from last year.
However, investors are optimistic about the future of the JSE. Earnings for South African-listed companies have still, despite all the troubles, grown 44% over the last three years with revenues at a rate of 6.8% growth per annum. The market itself is expected to grow 7.6% per annum over the next few years.
Tech is the preferred sector for price-to-earnings growth at 10.3%, while real estate expects an annual earnings growth of 48% over the next five-year period.
The JSE also intends to review its regulatory policies following the spate of de-listings since January 2021, mostly from small and medium cap companies that struggle to meet the strict criteria. Officials hope these moves will stimulate the market in the future after the number of listings on the JSE hit a new low in 2022.
Gains are already showing as the first company to list on the JSE this year is Premier, one of South Africa’s oldest companies, which has been experiencing massive growth over the past year.
Position of the exchange globally
The position of the JSE against the US market is one of the most positive indicators of its growth. The US’s rapid recovery post-Covid allowed its exchanges to dominate the global benchmark MSCI All Country World Index (ACWI), which in turn opened up a wide valuation differential between itself and other global companies.
Historically, South Africa has met the per annum increase of the dollar closely with its own rand. Despite a period of stagnation for the past 10 years, as South Africa begins to stabilize and new markets emerge, the rand is beginning to move up again.
Additionally, South Africa is in a good position globally to benefit from the increase in the dollar as an emerging market that produces commodities to the dollar. Valuations on the JSE are inexpensive compared to the US and are running at a good price-to-book value of 1.7x at the end of April 2022. This undervaluation of its equities and its position against the dollar creates a significant potential for the JSE to outperform the US going forward. This will place it as a top player among global markets.
Recently, South Africa has sent a delegation to the US to promote the JSE further and encourage more US companies to list as secondaries. In fact, many of the most valuable companies on the JSE, such as British American Tobacco (BAT), are not South African-based and have primary listings on foreign stock exchanges. This allows investors to benefit from the position of the rand against the dollar and invest in their own country while enjoying global growth.
Premier in upcoming African market
Especially within the African market, JSE is a premium exchange. It’s one of only two African exchanges listed in the top 24 of the MSCI Emerging Markets Index alongside Egypt, and it is the largest stock exchange in Africa itself. Many top 40 companies have dual listings which supports greater trading volumes and liquidity. In late 2022, a dual listing agreement was signed with the New York Stock Exchange.
The JSE has a market capitalisation of R21tn, or approximately $1.36tn. Itumeleng Monale, the JSE chief operating officer says: “It’s a world-class financial marketplace with high resilience and we’ve seen some rapid growth in some of our diversified business areas.”
Best investment opportunities
There’s large promise within the JSE for the future, and a canny investor would do well to invest in JSE Top 40.
This is an alternative to the FTSE All Share Index and consists of the 40 largest companies on the JSE by market capitalization. It’s seen a steady rise since its inception with a 136% gain in the 10 years ending 2022.
A total of 10 companies dominates 60% of the JSE Top 40 and are a consistently good investment for a return.
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