Does the nominal number of JSE listings matter?
By: Paul Miller
The JSE's CEO Leila Fourie has proved very defensive in the face of criticism about the ever diminishing number of companies listed on the JSE. You can read about it in the Business Day here.
I've collected the statistics from 1995 to 2020, because of my interest in the JSE as a market for junior mining companies - and the situation looks as follows:
The decline in the number of listed companies was initially accelerated by the JSE's move against artificial control structures in the early noughties. The ongoing inexorable decline in the number of listed companies was then briefly slowed by the boom ahead of the Global Financial Crisis in 2008/2009 and again by the property REIT listing boom in about 2014 - 2018. The first was driven largely by the commodity super cycle and the local construction boom, while the second can largely be attributed to regulatory change which made property companies more attractive to investors.
There have reportedly been a further 14 de-listings on 2021 and 20 companies are currently suspended, meaning the 340 listed companies in 2020 is actually closer to 306, or about half what it was in 1995.
I believe that the primary societal purpose of a stock exchange is to provide a venue for growing businesses to raise new capital, and secondary purpose is to provide a venue to trade those shares. Hence the terms "primary issuance" and "secondary trade".
This relationship has clearly been inverted, with secondary trade being of much more interest to the JSE than new companies listing their shares on the boards. This is after all where the JSE makes most of its money. We can thus expect more inward dual listings of large foreign companies and the listing of new financial products - all feeding the need for secondary trade without providing growth capital to new or growing companies.
There are clearly macro factors at play, however there is not nearly enough attention being paid to structural factors that have emerged since the last listings boom - which, in fairness, are mostly outside the control of the JSE. Like;
how has the Financial Advisory and Intermediary Act fundamentally changed the way South African's discretionary savings are managed?
how have the economics of the stockbroking industry changed in the last decade?
how has the concentrated nature of the South African asset management industry hurt smaller companies, as funds have got ever larger?
do the JSE's ever increasing disclosure requirements cost more than the benefits of being a public company?
In this, there must be opportunity for new initiatives and businesses to spring up and serve to link smaller investors with smaller companies. The Section 12J industry, as short lived as it was, has lead the way - with multiple Section 12J Venture Capital Company showing that it was possible to register a formal prospectus with CIPC and make a public offer of shares, without going through a regulated stock exchange. I think we can expect more innovation in this area, leaving the JSE to its secondary trade and ever increasing market capitalisation across an ever decreasing number of listed companies.