JSE’s Africa Board: Future gateway to Africa’s capital markets?

There are several initiatives underway to link Africa’s exchanges, chiefly to make them more economically efficient through achieving better liquidity and thus becoming more responsive and attractive to investors. Talks have been continuing for over 15 years, but recently several starts have been made.
One promising initiative is the Africa Board, offering leading African companies the chance to have a dual listing on South Africa’s JSE Ltd. (www.jse.co.za), Africa’s leading securities market, with good trading,clearing and settlement systems. The aim is that the shares would be traded on both the JSE and the home market. However, so far Namibia’s Trustco is the only listing, although talks continue with top listed companied in several African countries and with stock exchanges, regulators and other stakeholders.
Other initiatives to achieve more liquidity, many of which can develop in parallel and most of which should be encouraged, include a hub-and-spoke technology link-up being developed by the Committee of SADC Stock Exchanges and international broker link-ups through stockbrokers such as Auerbach Grayson (www.agco.com), Exotix (www.exotix.co.uk) and Securities Africa (www.securitiesafrica.com).
African Capital Markets News recently visited Johannesburg. We print an EXCLUSIVE email interview with Geoff Musekiwa (Business Development Manager, Africa Desk of the JSE Ltd.) on 2010 prospects for Africa’s securities exchanges.

ACMN: What are your strategic priorities for 2010?
GM: We will be cementing and building on the relationships that we created with all stakeholders in 2009, continuing with the outreach so that there is greater awareness of the Africa Board. Ultimately we expect the traction to culminate in a number of listings on the JSE Africa Board.

ACMN: What developments do you expect on Africa’s securities exchanges in 2010, including in terms of regional integration?
GM: 2009 was a very trying year for most exchanges from a return perspective, with the fortunes of most exchanges only turning towards the end of the year. One hopes that this year there will be renewed confidence in those markets in line with developments in global markets. There have been various initiatives towards integration, notably in East Africa, SADC and West Africa. The extent of progress will obviously differ across the regions and our expectation is that discussions will continue until member constituents find common ground.

ACMN: How is technology affecting the progress of the Africa Board and the African exchanges? What are the significant developments?
GM: There is a move from the exchanges that are still paper-based, to make their trading electronic so that they can make cross-border trading for dual-listed stocks easier and possibly in readiness for eventual integration. International investors also need a certain level of comfort in the systems they utilize to trade and automation is definitely a key requirement. As part of the JSE Africa (ex-SA) strategy, stock exchanges can utilize the existing JSE platform by linking their systems for trading, clearing and settlement. Thus far, only Namibia has taken up this offer.

ACMN: Initially some exchanges claimed the Africa Board would take liquidity, reducing it even further for African exchanges. What is your response? Do you think that stakeholders and exchanges are starting to change their views?
GM: The key objective of the JSE Africa Board was to assist in the development of the other exchanges on the continent. We have looked empirically at the benefits of dual listings particularly regarding liquidity in the home exchange in the long term. When some JSE issuers sought dual listings in London in the 90s, there was a similar outcry from the local stakeholders. In fact the reverse occurred – as the companies increased their pool of investors and accessed more capital they began to have an increased interest from investors, greater following from analysts and were able to transform themselves into truly international companies without losing their identity. The downstream benefit, in addition to increased volumes on the JSE, was an increase in interest not only on those companies but in SA as an investment destination. This is what we would like to achieve through dual inward listings onto the Africa Board. The increase in liquidity of stocks trading on the Africa Board will be the most persuasive argument to the stakeholders that may still doubt the motives of the Africa Board

ACMN: Any details you can give of listings planned or other developments?
GM: It would be premature to give details of expected listings before the announcements are made but stakeholders will be kept abreast of developments at the appropriate times.

ACMN: How is the interest from institutions and brokers? Which stockbrokers can buy and sell on the Africa Board?
GM: Interest in Africa as an investment destination has grown over the years, mainly because of its perceived low correlation with developed markets. Consequently there has been a proliferation of Africa Funds with a distinct mandate to invest on the continent. But there remain a few challenges (some perceived and some real) that hinder the successful and efficient execution of trades including but not limited to liquidity, different regulations and logistical challenges. Brokers and fund managers are naturally excited about the Africa Board because it offers them an opportunity to trade African assets on a platform that they are fairly comfortable with, so we are in effect bringing the rest of Africa to their doorstep. The benefit for the other exchanges will come through over time, as the standard of the Africa Board constituent issuers will demystify any notions that investors may have on African capital markets.
The brokers that can buy and sell on the Africa Board are those that are members of the JSE. Trading can either be done directly through the JSE members, or through brokers in the home country, who will in turn instruct the JSE member. In order to take advantage of the opportunities that the Africa Board offers, it is important that the brokers on the continent foster cross-border execution relationships with each other, thus creating mutual economic benefits for the brokers.

ACMN: What’s the 2010 outlook for African exchanges?
GM: As global markets recover, there are increasing indications that portfolio flows into Africa are beginning to tick upwards. One hopes this will trigger a renewed interest in listed securities and also provide the necessary capital to allow issuers to resuscitate plans that they had shelved amidst the crisis. We stand ready as the JSE Africa Board to assist issuers to achieve these objectives.


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