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Is the Afrox delisting another sign of the death knell for equity markets? Number of listed SA equites halves in last 20 years

21 October 2020 Schroders
Kondi Nkosi, South Africa Country Head at Schroders

Kondi Nkosi, South Africa Country Head at Schroders

The recent announcement of Afrox’s delisting has triggered renewed concerns around the dwindling numbers of listed companies on the JSE. Referring to it as “delisting crisis”, the Business Day recently reported that the narrowing options for SA investors is cause for concern with 250 fewer companies listed on the JSE now than in 2000 and 21 companies delisting from the exchange in 2019.

But why are companies delisting? Is it really cause for concern? And is it something unique to SA?

“The number of companies listed on the world’s stock markets has collapsed over the past two decades,” says Kondi Nkosi, Country Head for South Africa at global asset manager, Schroders. “In South Africa, the United States and the United Kingdom the number halved. New listings in the USA averaged more than 300 per year before the turn of the millennium. Today, that average is down to about 100,” said Nkosi.

Locally, Nkosi explained that new listings in South Africa also roughly halved over the last 20 years or so. Yet, in China and many of the fast-growing Asian economies, the number of listed companies have doubled.

“Interestingly, the number of listed companies has collapsed in many parts of the western world. In South Africa, it has halved in the last 20 years. Traditionally, stock markets were a venue for companies to raise money to finance growth – but the decline suggests that markets perform this function less and less.”

Nkosi adds that that easier access to alternative sources of financing alongside the increased cost and hassle of a public listing are all partly to blame. “Savers and policymakers should all be concerned about the implications,” says Nkosi. “However, all is not lost. Equity markets are thriving in some parts of the world and even where they appear not to be, they continue to serve an economic purpose, albeit one that is different to the original blueprints,” he says. “Some markets have experienced similar trends to the US and UK but others have been diametrically opposed”.

Nkosi is available for interviews to unpick some of the potential explanations around why listings have come under pressure in some markets and not others, and why the equity market continues to serve a purpose, albeit not exactly the same as originally envisaged.

 

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