CONTINENTAL SYSTEM - JSE MAGAZINE

CONTINENTAL SYSTEM

Investing in Africa may no longer be a risky business, thanks to a new product launched by the JSE

CONTINENTAL SYSTEM

Doing business in Africa had previously been risky because of fluctuating exchange rates. Not anymore. The JSE has launched the African currency futures, which provides protection to investors and businesspeople alike. Warren Geers, Head of the Currencies Market at the JSE, says the move ‘has been a long time coming’.

‘We’ve seen the global appetite for risk in emerging countries in Africa. This will help to mitigate risk and enable investors to trade with more certainty,’ he says.

From October, investors, importers, exporters and travellers can use currency futures to hedge against movements in the exchange rate of African countries.

Investors can take advantage of price movements in the exchange rate as they can determine whether it will strengthen or weaken. Meawhile importers and exporters will be able to fix prices. Geers believes that it will give investors far greater flexibility.

‘At the moment, if you are doing any contract work in Africa, you can only invoice at that point in time. You don’t know what the exchange rate will be in six months time if you get the tender. Through African currency futures, you can already start hedging out that risk today.’

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‘Participants will be able to use the JSE to trade in the Africa FX currencies against any other foreign exchange cross’

ANDREW GILLEPSIE, HEAD OF FUTURES, TRADITION FUTURES

Initially the Zambian kwacha, Kenyan shilling and Nigerian naira will be listed and quoted against the SA rand. However, Andrew Gillespie, head of futures at Tradition Futures, a specialist division broking JSE listed forex (FX) instruments, says the stock exchange’s platform and architecture will give exposure that will be hedged out in these three currencies versus many other global FX currencies. 

‘Participants will be able to use the JSE to trade in the Africa FX currencies against any other foreign exchange cross of their choice, whether it be US dollar, euro or GBP.’

George Glynos, MD of ETM Analytics and Tradition Analytics, the research partner for Tradition Futures, believes the time is ripe for a transparent, independent platform such as the JSE’s African currency futures. ‘If one looks at the trade data between South Africa and Africa, you will note that Africa has now become South Africa’s second-largest trading partner. The greater the level of trade that takes place between SA and the rest of the continent, the greater the demand for different hedging techniques.’

Geers says the JSE is introducing a different element to risk mitigation compared to that which banks are bringing to the market.

‘We will still rely on banks to make prices because they are the market makers, but the new product will have the flexibility to hedge upfront at any time.’ The three African FX futures will conform to the standard specifications of all currency futures listed on the JSE and will be cash settled and margined daily in SA rands, he says.

Two-way prices will be displayed live on the JSE system. This information will be disseminated in real time to data vendors and market participants and streamed via the JSE website.

Glynos says that he expects trade in these instruments to gain speed, helped along by the JSE’s solid reputation.

‘The JSE continues to be ranked as one of the top exchanges in the world as ranked in the WEF’s Global Competitiveness Report. It has world-class regulation, which ultimately builds confidence among investors and will attract trade.’

Gillespie expects interest from a range of sectors, from SA’s asset management and hedge fund management industry, to the global investment community, donors, NGOs, and domestic as well as international organisations that may be funded in US dollars but wish to manage their exposure to the domestic currencies in which they operate.

‘The ability to transact anonymously and have access to a level and fair playing field, where the best price is available to all without bias or favour, is a vital feature of this market in African FX on the JSE,’ says Gillespie.

By Kim Cloete
Image: Fredrik Broden/reneerhyner.com

JSE MAGAZINE