Sam Mokorosi, head of origination and deals at the JSE, says the government of national unity (GNU) is turning the tide on the bloodbath that has seen the bourse lose more than half its listings since 1998.
“We’re definitely seeing a more positive sentiment playing out in the market. A stronger rand, government bonds rallying, the all share index rallying.”
He attributes this to expectations that the GNU means improved prospects for growth, and relief that a market-hostile coalition did not take over after the ANC lost its absolute majority in the May elections.
“The view is that the current GNU is more market-friendly than a left-leaning coalition could have been.”
Mokorosi says indications are that the highly publicised disagreements within the ANC about the GNU, focusing on the inclusion of the DA, are not affecting the positive mood of the market.
“The political analysis we receive is that there are more incentives for all parties to make the GNU work than there are incentives to dissolve it.”
The JSE’s analysis is that “there is a high chance of the GNU surviving the full five years of the current administration”.
Markets at the moment are more concerned about how South Africa is going to be affected by a Donald Trump presidency, he says. This is why the rally in the market that started in June slowed significantly in November after the US presidential election.
Investors are more interested in fundamental economic data such as the interest rate outlook and how quickly interest rates are going to decline.
“We’ve only seen 50 basis points [cut] to date by the Reserve Bank. I think investors were hoping for more. The economic performance of the country really needs to start delivering to provide support to the market.”
We’ve only seen 50 basis points [cut] to date by the Reserve Bank. I think investors were hoping for more. The economic performance of the country really needs to start delivering to provide support to the market
The markets take comfort that the reforms begun under the last administration will carry on regardless of the “murmurings” of the SACP, Cosatu and entities such as the Gauteng ANC, says Mokorosi.
The looming water crisis and spiralling municipal debt are becoming “more and more of a conversation” among companies and investors.
“So it has been encouraging for them to see the National Treasury drawing a hard line against municipalities that aren’t paying Eskom and the water boards. It’s good to see that strong, centralised response.”
He thinks the regulations governing municipalities need to be looked at to give the central government more levers to fix the water crisis.
Mokorosi says the initial public offering of Pick n Pay’s discount supermarket subsidiary, Boxer, which shot the lights out last month, has contributed to the positive listings sentiment. But he concedes that it and other successful IPOs this year have mostly favoured institutional investors; they’ve done little to spur the vibrant retail participation in the stock market that is so important for economic growth.
“We haven’t seen a proper IPO for some time. What we’re seeing are primarily institutional investors as opposed to retail investors.”
Is enough being done to increase retail participation in capital raising?
“It’s definitely not at the level we’d like to see. We’d certainly like to see much broader participation in the markets.”
The JSE has been pushing for changes to capital gains tax rules and tax deductions for holders of small-cap stocks to incentivise this, but “we’re not making much progress there from a policy perspective”.
The exchange is working with the government and some private sector leaders to look at capital markets in general, including ways of supporting small caps such as changing the liquidity requirements to make it easier to invest in them.
“The aim is to improve the ecosystem so if you’re a small company looking to raise capital in the stock market there are pools of capital that can get a look into you. This will encourage more small companies to come to the market and list.”
But it’s not going to happen any time soon, he admits.
“A lot of this is still very much in the planning stage.”
The JSE has also been trying for some time to persuade the government to allow people to put some of their pension money into stocks they like, something that has helped the Australian market to flourish. “This is another of the conversations we’re still having with government.”
Having the JSE, Reserve Bank, National Treasury, DA, ANC and corporate leaders all singing from the same hymn sheet about the investibility of South Africa, the success of the GNU, and of regulatory changes, was a very welcome message
Is enough being done to sell South Africa as an investment destination?
Mokorosi says a delegation comprising JSE representatives, the Reserve Bank governor, the two deputy ministers of finance and other members of the GNU recently returned from a sales trip to London and New York where they had a “very positive response from investors”.
Prior to that, Deputy President Paul Mashatile was in London “to preach the same gospel”.
“I think certainly that having the JSE, Reserve Bank, National Treasury, DA, ANC and corporate leaders all singing from the same hymn sheet about the investability of South Africa, the success of the GNU, and of regulatory changes, was a very welcome message. And we’ve seen that in the bond market where, since the GNU, foreign investors have been net buyers of South African bonds.”
Isn’t it likely to confuse investors that while supposedly preaching the GNU gospel, Mashatile is saying the government could happily do without the DA?
“I have no idea why he is saying this. But what investors are looking for is consistency in policy, and the policies we’ve seen are ANC policies that have been part of President [Cyril] Ramaphosa’s agenda for some time, and the market takes comfort in that.”
How would it impact the positive investor sentiment the JSE is celebrating if the DA left the GNU?
“It’s all about which policies are being followed. The market has welcomed National Treasury policy moves to reduce South Africa’s debt burden. If this policy were to be reversed and the Treasury suddenly said we need to run bigger budget deficits, the market would respond very badly to that.
“While the market is clearly supportive of the DA in government, it is more supportive of the continuation of market-friendly policies.”
The question he’s asked by foreign investors is whether these market-friendly policies would survive a DA exodus.
“The JSE is confident that the policy framework that’s been put in place to attract private sector participation is well enough grounded to withstand fluctuating political pressures,” he tells them.
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