A Shrinking JSE: Should recent history make us worried?

The JSE has undergone a notable transformation over the past two decades, marked by a significant reduction in the number of listed companies.

From its peak of 484 listed companies in 2002, the JSE has seen a decline to 302 as of Q1 2023, representing a 38% decrease. While these changes may raise concerns among investors, it's essential to examine the underlying factors driving this shift.

One critical observation is that this decline reflects a structural change rather than a temporary fluctuation. Processes of consolidation, growth, de-listings, and new listings are at play, not unique to the JSE but part of a broader global trend observed in major equity markets worldwide. Exchanges in the US, Germany, and the UK have also experienced declines in listed companies over similar periods.

SOURCE: WWW.CEICDATA.COM|Johannesburg Stock Exchange

Figure 1: Number of listed companies on the JSE 2002 - 2023

Despite the reduction in the number of listed companies, the JSE's overall market capitalization has increased over the same period. This indicates a concentration of value among select firms. Notably, the proportion of companies with a foreign primary listing on the JSE has risen significantly, from 4.3% to 20.4% of total listings. This increase in foreign listings underscores the JSE's integration into the global economy, providing domestic investors with enhanced portfolio diversification opportunities.

While de-listings are inevitable and serve as a natural part of market dynamics, it's the imbalance between new listings and de-listings that poses the primary concern. Although de-listings have increased in recent years, the reluctance of new companies to enter the market appears to be the main issue. This imbalance is evident in the steady net decline in the number of shares entering and exiting the FTSE/JSE All Share Index (ALSI) since 2018 (Figure 2). Without a steady stream of new listings, the JSE may face limitations in its ability to adapt to evolving market conditions and provide investors with a diverse set of investment opportunities.

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