African stock exchanges ‘must link up’

13 December 2012

Africa’s stock markets must collaborate to make the most of historic levels of investor interest in the continent, the head of the Johannesburg Stock Exchange told news agency AFP last week.

“The appetite for Africa is very very high,” said Nicky Newton-King, making the case for better links between the continent’s 24 bourses as a means of propelling Africa’s recent and dramatic economic rise.

The International Monetary Fund forecasts the aggregate economy of sub-Saharan Africa will grow at around 5.7 percent next year, presenting a massive economic opportunity of the type the region has too often squandered.

“I think everybody is trying to find their way, to participate meaningfully in that rising,” said Newton-King, who took over at the continent’s largest exchange in January this year.

“All of us who are privileged enough to run exchanges, need to figure out that these waves of investor appetite aren’t yours by right. Once they come you have to be able to ride them properly.

“We should not be taking this as business as usual, this is a business opportunity.”

According to Newton-King, one way to ride the wave of interest would be to make it easier to invest across Africa’s borders and to improve liquidity in small markets – making a big enough pool that assets can be bought and sold quickly.

To that end, the JSE is looking to ink deals with two other bourses in the region.

But for now, those deal will focus on improving the continent’s financial plumbing – allowing cross and dual listings and easier order-routing – rather than the creating one pan-African exchange.

“I think it is far more about collaboration,” she said.

“Were we not to have any exchanges on the continent I think we would have wanted to create a single exchange that would service multiple jurisdictions out of one legal base.

“That’s the most efficient way to do it, but I’m a bit of a realist.

“Once you try to do cross border mergers and acquisitions, you run into much more trenchant issues of a regulatory nature, all of which stem from ‘how do we protect the local investor?’, ‘how do we make sure the local market grows?'”

Newton-King insists that allowing Kenyans to invest in joint-listed South African stock in shillings, or by allowing South Africans to more easily place orders for Nigerian stock, markets would attract more foreign investors.

“Really big trades are not going to go to illiquid markets.

“The average days trade on the JSE is more than the average annual trade on Kenya and Mauritius put together. There are amazing companies in both of those countries.”

Despite political concerns about the erosion on sovereignty that could come with more integrated markets, Newton-King says South Africa’s own experience demonstrates the benefits.

“When Anglo-American cross-listed in London, the amount of trades in Anglo-American increased. South Africa’s percentage of trade in Anglo-American decreased, but the decreased percentage was worth more.

“In those cases, you have to think quite bravely.”