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JIMMY MOYAHA: We’re taking a look at the Johannesburg Stock Exchange [JSE] now. With everything happening at the World Economic Forum there is a lot to be said around how attractive markets are – particularly emerging markets. And South Africa, believe it or not, is still one of, if not the, most attractive emerging market economies, certainly within the continent from an equity standpoint, but also just in general as an emerging market. We have a lot going for us if we can just get past certain things.
I’m joined on the line by the head of capital markets at the JSE, Valdene Reddy, to take a look at the prospects that lie ahead for the South African market. Good evening, Valdene. Thanks, as always, for the time.
We’ve seen a lot of movements on the JSE over the last year, maybe year-and-a-half, and a lot of them have been around delistings. There was a time where we [saw] a lot of concern around delists and we saw a number of them throughout the year. But that’s not necessarily the worst picture to have in mind. South Africa still has a lot to look forward to, and our markets – certainly from a JSE perspective – still have a lot of reason to remain hopeful.
VALDENE REDDY: Absolutely. Good evening, Jimmy, and thanks for having me on the show. You’re absolutely right. South Africa has faced some headwinds and I think there are two ways to look at this is. One is the macro – and the operating environment for us as a country, [both] on a standalone [basis], but also relative to the world where you’ve had other markets outperforming, and lots of geopolitical pushes and pulls that added uncertainty.
And then the second [way to look at it] is the liquidity and capital raise perspective of South Africa, and what can be controlled and what we can be proactive about. Both of those really are at a critical point right now [and] they need to converge to get the narrative right.
So what are the opportunities? South Africa still has both deep and liquid markets. And you’re absolutely right; while we haven’t had a huge pipeline of IPOs, that actually is the global picture at the moment.
Through high inflation cycles and through rising interest rates people have actually gone to more safe-haven assets and actually, just with interest rates up globally, people have gone into those types of assets.
So equities markets haven’t been involved and, though a few countries like India with GDP growth that is close to 6% to 8%, or certain markets in Hong Kong, or Saudi Arabia that’s been reforming its IPO market, or select pockets in the US…
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You haven’t seen a good IPO landscape across the board. It hasn’t been a time for equity markets. And the delisting space in South Africa has been really in the smaller and mid-cap space and not so much in the liquidity of our market.
The liquidity of our market still stands in those Top 40s.
So South Africa still punches way above its weight. We are [in the] top 20 markets in the world. Our equities market is offering deep value at the moment. Internationally, investors are actually underweight South Africa.
So it creates an opportunity that, if we get the macro right and get some delivery on both growth, if we get fiscal stability through the SOE reforms, as well as in opportunities to yield the right valuation in the equities market, and as cycles turn, our market bodes very well for next year as people could move to a higher position in equities and the emerging markets for South Africa on a standalone [basis].
And secondly, even in our bonds market, on an absolute basis on yield, on a risk/reward basis, South Africa has very good real returns which will be a focus point next year.
So while we have challenges, there’s definitely a positioning and relevance element that we all need to lean in on to get interest into South Africa. It may not solve the delistings narrative, but it’ll certainly build a stronger pipeline for capital raise across equities and debt, as well as get more offshore investors and more local investors invested in our local markets.
Read: Fighting the curse of companies leaving the JSE
JIMMY MOYAHA: Valdene, you mentioned something about the macro picture wanting to see a lot more stability – that sentiment at the moment wants to see some of the underlying issues being tackled. Where are we seeing that capital is flowing at the moment? Are we seeing capital go into things around private equity? Is it going into infrastructure development? And, on that point, if we are expecting that these bigger headwind issues will start to stabilise, do we think that there might be a correction in future – in 2024 at least – where we see market investors say, hang on, South Africa has been undervalued for the longest time. There was a significant sell off and maybe this is the time to get back in.
VALDENE REDDY: Absolutely. I think we need to see this as three big pictures. There’s a public market overhang from timing and macro. There’s definitely a rise in private market equity and debt raise. And then there are the big initiatives, with sectors or genres in our economy that lead to the growth of South Africa under our national imperatives that could drive growth.
The infrastructure one is really one of high-magnitude projects, but they sit largely at a sovereign space.
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So it’s really important that the public and private sector work to grow their segments through infrastructure investment.
That is really taking a bet on the country. So you have to see your effects, your currency stability, you have to see growth in the underlying market. You have to see policy and governance changes that give you trust in the market, because people will invest if you show that those building blocks are in the right direction.
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Secondly, [in] South Africa in the past five years we’ve seen a net-sell bias from locals and foreigners, and other markets flexing. Right now the opportunity is standing off a low base – people are looking at our market again.
So if they get the sentiment from public and private-sector collaboration and then specific bankable projects – whether it’s growth segments, whether it’s mining, whether it’s infrastructure, whether it’s renewables – and these have very transparent mechanisms for capital raise through the public market, equities or debt, or even private market aggregation – you can get real good offshore and local interest.
Institutional investors in South Africa, who have been in traditional markets like equities and bonds, are hungry to flex up.
Their alternative investment mandates manage that skillset onshore for things like the growth segments. Infrastructure segments are getting interest from even our local instore assets.
Quick wins
So the timing is really opportunistic. But it’s accountability from public and private sector to be executing on these strategic projects.
So getting a couple of quick wins in, whether it’s Eskom or Transnet – I know it’s easier said than done – or whether it’s parts of municipalities and then international interest to show on a returns basis this is a marketplace to put your money in, and there’s governance, stability, transparency and liquidity.
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If that’s aligned and concerted, we have a good chance to really, really get money into South Africa. Lots of politics at play and, as you know, the politics are above the patriot, I guess. It’s a market now where there’s more than half the world facing national elections and huge political shifts.
So South Africa’s relevance will be really important for us to have a strong narrative, executable strategy and then joint roadshows between the public and private sectors to channel that funding.
JIMMY MOYAHA: We have the potential. We are there, we are ready, we’re waiting. We just need the rest of the participants in the value chain to do their part.
We’ll leave it at that. That was Valdene Reddy, who is the head of capital markets at the JSE, saying that South African markets can’t be counted out just yet.
There is lots of value within the South African markets – and I agree with her, there are a lot of good opportunities, not only in the local equities, but in the local programmes and in investing in South Africa. Let’s hope that this translates, and this is what the team that’s gone to Davos is saying.
