Equity Market Overview for 2010
The year 2010 will be remembered for its increased global uncertainty and additional focus on the regulation of financial markets. However the JSE equity market has fared positively on several fronts.
The FTSE/JSE All Share Index (ALSI) rose 13.86% from December 2009 to December 2010, reaching a high of 32,210 towards the end of December 2010.
For 2010, daily average trades increased 13% to 94,656 trades compared to a corresponding period in 2009. That equates to a total of transactions for 2010 at 23,758,658 compared to 20,950,750 and 17,398,986 recorded in 2009 and 2008 respectively.
A record was achieved in June, when 205,748 trades valued at more than R20 billion were recorded on the exchange. This is the first time in the JSE’s 123 year history that number of trades has crossed the two hundred thousand mark. The previous record was set on 7 May 2010 when 189,253 transactions were recorded. The rise in 2010’s average daily trade numbers contributed to the record.
South Africa’s ranking in the World Economic Forum’s 2010/2011 Global Competitiveness Review – as the world’s best regulated financial market – bodes well for offshore interest in the JSE capital markets.
[Note to editor – Possible graphic: All Share Index]
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One factor contributing to the increased trade volumes was a new equities market billing model, introduced in March 2010 in a bid to incentivise high volume and value participants. The billing model is structured not as a fixed rand per trade charge, as the previous model was, but as a value-based fee with minimum and maximum charges. The model also has a discount mechanism: when members achieve a value traded of R15 billion in a billing period, they qualify for a further 20% fee reduction for each transaction thereafter.
“A further change will be implemented on 1 February 2011 where the current minimum of R5,48 will be reduced to R5,00 and the ceiling amount of R12,34 will be increased to R18,00. This would be a second step towards moving to a more value based billing model.” says Leanne Parsons, Head of the Equity Market at the JSE.
Another probable contributor to increased trade was the volatility in the market during some of the period. Historically, volatility has been correlated with increased trade activity. The SAVI (South African Volatility Index), a forecast of equity market risk in South Africa, peaked at 32.13% on 25 May. However this is significantly lower than records achieved during the turbulence of early 2009, when the SAVI peaked at 47.69%.
[Editor: possible graphic: The SAVI (South African Volatility Index)]
Value added services to attract trade were also introduced during 2010. In July, the JSE implemented Block X, a trading facility offering hidden order functionality. This is valuable to traders who want to transact large numbers of shares without revealing all the information to the market, whilst using many of the efficiencies associated with trading on exchanges’ Central Order Books. “In an era in which the average transaction size is declining on the JSE and worldwide, exchanges need to find ways in which investors can execute large orders with the lowest possible market impact,” says Parsons.
The JSE’s bid to encourage individual or retail investors to invest continued in 2010. “The JSE views the South African retail market as a long-term growth area and continues to pursue its strategy of increasing the financial knowledge of South Africans with the aim of growing the number of retail investors and adding to trade volumes,” says Parsons.
During 2010, the JSE hosted showcases to educate investors, particularly stressing the value of Exchange Traded Funds (ETFs) to smaller investors. The JSE’s retail investor showcases are aimed at educating financial advisors, potential ETF investors, and the general public.
“The ETF market in South Africa is growing and the JSE is actively working with ETF issuers to bring additional products to the market,” says Parsons. “As a part of the JSE’s broader African strategy, the exchange is working with a provider to develop ETFs on African securities. The move to encourage ETFs on African securities is a logical part of the JSE’s strategy to promote the growth of capital markets on the African continent.”
Though foreign investor interest in the JSE’s equity market has waned from the record inflows of 2009, strong inflows continue. By end-November 2010, foreigners were net buyers of local equities to the value of R31.4 billion. The JSE’s international strategy, aimed at targeting international market participants to trade in South African securities has proven to be extremely successful in 2010 as the team is in discussions with various international brokerage firms and fund managers on either registering as a JSE member or trading as the client of a JSE member. To date, one international brokerage firm entered the South African market place through its purchase of a South African broker to achieve their South African market presence plans. A couple of others are in the process of applying for membership and various others are currently trading as clients of JSE member firms.
The increasing investor appetite for Africa as an investment destination is yielding results. In the first six months of 2010, total investment fund allocation to Africa was a record $1.39 billion, according to investment research firm EPFR. The JSE’s Africa strategy is aimed at contributing to the improvement of Africa’s capital markets. The exchange’s Africa Board offers a destination for trade of quality African companies, acting as a gateway for investors wanting to access African securities.
The JSE is currently amongst the world’s 20 largest equity exchanges in terms of market capitalisation.
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