There are huge opportunities to benefit from regional integration in Africa. One way we see African stock exchanges pursuing this is through cross listings, partly through ETFs, on various exchanges throughout the continent.

By allowing an issuer to trade in – and tap the liquidity of – more than one market, we will be using the power of financial instruments to integrate trade and investment across our continent. By working together, we are able to benefit from liquidity without having to go through organisational change. It’s a win-win for both issuers and investors in Africa. They will have an instrument to trade in places that can attract deep levels of liquidity.

I see it as a pivotal way of opening up new opportunities between African stock exchanges. In many instances, investors have regulatory constraints that allow them to invest only a certain amount in other markets. Having a specific share or bond listed in their home market gives investors the advantage of buying and selling in a market they’re accustomed to, manage the portfolios they already have and abide by the clearing rules that they know. For the issuer, it’s an opportunity to tap new pockets of liquidity.

From the JSE’s perspective, the interest has been very encouraging, particularly from Kenya and Nigeria, but also from other West African exchanges as well as bourses from throughout sub-Saharan Africa. We have found issuers in countries that are interested in listing ETFs on SA markets, and we have found South African issuers interested in listing ETFs on indices of other African countries.

An example of a transaction that’s worked very well is the inward listing of Botswana-based retail giant, Choppies Enterprises. It wanted to raise capital for its business and listed on the JSE in May 2015. The company raised about R700 million in capital. As the JSE is Africa’s largest stock exchange by market cap and because we have a deep pool of liquidity in our market, inward listings are attractive and have proved to be of great benefit to investors.

ETFs, which track an index of the market, have become extremely popular globally and are a very effective way of tracking indices across African exchanges. They’re also typically cheaper than other collective investment schemes. ETFs in particular are very attractive to retail investors globally, because they’re generally low-cost alternatives to track markets’ investment themes. Institutional investors are making increasing use of them as a way to improve their performance and gain exposure to certain kinds of industries they believe will outperform benchmarks.

While some SA ETFs are listed in other markets, we don’t have any ETFs listed on the JSE from other African markets but we are aware of work being done by some issuers on these types of instruments. We are hoping that sometime this year we will be listing some ETFs referencing other African countries.

In regions such as Europe, cross listings of ETFs have taken off. By the end of October 2015, there were 1 519 ETFs listed on 24 exchanges in 21 European countries. In Europe, cross listings are more popular because the markets are so integrated.

In Africa, we are reaching a stage where ETFs may become a feature of integration, especially on the bigger stock exchanges, which are more liquid. Through cross listings, we are allowing investors to diversify their portfolios into markets where they have an appetite for risk, but can still apply local rules and listing standards.

We see a great future ahead and look forward to working together with issuers, investors and our fellow African stock exchanges on this exciting new development.

Donna Oosthuyse
Director: Capital Markets

April 2016
Image: Hanlie Huisamen