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Unveiling opportunities: The effect of portfolio size on equity opportunity sets

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Unveiling opportunities: The effect of portfolio size on equity opportunity sets
Vongani Masongweni | Quantitative Research Analyst

In the dynamic realm of asset management, the debate over size and performance has long been a topic of contention. While larger managers often command attention with their substantial size, as measured by assets under management (AUM), smaller managers have garnered attention for their purported ability to deliver alpha. The magnitude of assets managed by an asset manager often plays a pivotal role in determining its choice of investment strategies and the universe of opportunities it can explore.

In this article, we focus on the opportunity sets available to managers of varying sizes, measured by their AUM. Our exploration is driven by the recognition that smaller managers, often praised for their potential to outperform, may possess a distinct advantage in the form of a more expansive opportunity set. Conversely, we aim to show how a diminishing opportunity set plagues larger managers, despite their seemingly vast resources.

Our analysis primarily focuses on defining the equity opportunity landscape available to asset managers across varying sizes in the South African market. We categorise hypothetical managers into three distinct groups based on their AUM: small or
boutique managers (R1 billion (bn), and R5 bn AUM), medium-size managers (R10bn, R20bn, and R50bn AUM), and large-size managers (R100bn and R200bn AUM).

The opportunity set for each manager size is defined as the set of companies within the FTSE/JSE All Share Index (ALSI) in which managers can hold at least 5% of any share without exceeding a 15% shareholding of the total free float market capitalisation. By capping shareholdings at 15%, the analysis mitigates concentration and ownership risk and ensures diversification within portfolios. It is also intended to manage and prevent market impact to a large degree. Limiting shareholdings to 5% of any share in a portfolio helps prevent market impact, particularly for smaller managers and also ensures some diversification and breadth in an investment portfolio. The 5% holding in a portfolio also represents a conviction view on shares outside the top 10 shares by market capitalisation.

Excessive buying or selling by a single manager can influence stock prices, potentially resulting in adverse market movements and impacting trade execution. This analysis accounts for the availability of shares in the market for trading by considering free float market capitalisation. Free-float market capitalisation reflects the portion of shares available for public trading, ensuring that the analysis focuses on investable stocks with a perception of sufficient liquidity through market cycles.

Opportunity set over time

Our analysis unveils compelling insights into the investment landscape across different asset manager sizes. We meticulously stratify asset managers based on their AUM, adjusting for total market capitalisation changes over time to ensure consistency. The evolving opportunity set over time for asset managers of different sizes is represented in Figure 1.

Figure 1: Change in opportunity set

Source: Momentum Investments Group

Table 1: Manager access to investable universe as at end of 2023 (% of listed shares)

With substantial AUMs at their disposal, larger managers are often perceived as wielding significant influence in the market. However, our analysis reveals a nuanced reality. These managers, overseeing AUMs of R100 billion and R200 billion, find themselves constrained, with access limited to a mere 44 and 29 shares on the JSE respectively, leaving them with access to only 35% and 23% of the investable universe. This constrained opportunity set underscores the challenges associated with managing colossal funds, where the pool of viable investment options shrinks considerably. Important to note that this view also does not consider the practical liquidity considerations on a day-to-day basis, which can also negatively impact the opportunity set.

Medium-sized managers encounter a different set of dynamics. With AUMs ranging from R10 billion to R50 billion, these managers enjoy a more extensive opportunity set compared to their larger counterparts. However, their scope remains constrained relative to smaller managers, with access restricted to 66 shares within the ALSI. This finding underscores the delicate balance these managers must strike between diversification and concentrated investment strategies.

Contrary to conventional wisdom, which often suggests that due to their limited resources and scale, boutique managers would have a restricted opportunity set compared to their larger counterparts, we found this not to be the case.
Our analysis reveals that smaller managers, overseeing AUMs as modest as R1 billion to R5 billion, are not hampered by a lack of investment options. On the contrary, these managers benefit from a more expansive opportunity set, with access to 127 shares within the ALSI in 2023, which is 100% access to the investable universe.

This broader scope empowers skilled smaller managers to pursue diverse investment strategies, potentially enhancing their ability to generate alpha amidst market fluctuations.

Figure 2: Change in opportunity set for different sized asset managers 2004 to 2023

Source: Momentum Investments Group

The limitation on the number of shares available for investment poses challenges for larger asset managers seeking to diversify their portfolios adequately. Surprisingly, our analysis reveals that while smaller managers experience a greater absolute reduction in
their opportunity sets, larger managers encounter a more pronounced impact in percentage terms, a decline of 18% for the smallest manager compared ro a 26% decline for the largest manager.

This constraint not only affects the breadth of investment options but also translates into a notable constraint on industry diversification within portfolios. In 2024, for instance, the analysis indicates that due to the available opportunity set, larger
managers structurally exhibit above-benchmark concentration in the basic materials, financials, and technology industries, with minimal allocation to sectors such as energy and real estate. Conversely, the smallest managers maintain a similar industry concentration as the benchmark. With a diminished pool of assets to select from, larger managers may face heightened competition for the most promising opportunities, potentially compromising their ability to achieve optimal risk-adjusted returns.

Figure 3: Opportunity set industry concentration in 2023

Source: Momentum Investments Group

Liquidity constraints

Liquidity plays a pivotal role in shaping investment decisions and portfolio management strategies. Recognising the importance of liquidity in navigating dynamic markets, we conducted a comprehensive analysis to assess the trading capacity of asset managers across different sizes. By examining the relationship between opportunity set size, daily trading turnover, and the ability to execute trades without moving the market, we provide valuable insights into the liquidity challenges and opportunities facing asset managers today.

Our analysis focused on quantifying the trading capacity of asset managers by determining the number of days it would take to trade out 100% of their AUM invested. To ensure minimal market impact, we restricted trading to no more than 10% of
each company’s daily turnover.

Figure 4 presents the average number of trading days per manager from 2004 to 2023. The analysis revealed a clear trend: Smaller managers consistently demonstrated greater trading capacity compared to their larger counterparts. On average, a manager
overseeing R1 billion in AUM could completely trade out their portfolio in approximately 40 days, whereas a manager with R200 billion AUM would require approximately 330 days, representing a staggering eightfold increase in trading duration.

This disparity can be attributed to the smaller size of their opportunity sets and the higher reliance on the liquidity of the companies within their portfolios due to larger components of free float market capitalisation that need to be traded. Consequently, smaller managers are better equipped to execute trades efficiently and without undue market impact, enabling them to capitalise on investment opportunities with greater agility. In contrast to this trend, it will take managers with R100 billion AUM an average of 440 days, which is more than managers with R200 billion. This is because their
opportunity sets allow them to have access to both less liquid mid-caps compared to the largest manager with access to only large-caps.

Figure 4: Average trading days per manager 2004 to 2023

Source: Momentum Investments Group

To provide a more nuanced view of liquidity dynamics, we also examined the proportion of the opportunity set that can be traded out within 30, 60 and 90 days. This considers the relative size of the opportunity set that can be readily traded within short time horizons, providing insights into the immediacy and depth of liquidity available to managers. It allows for a comparative analysis of liquidity conditions across manager sizes and periods, highlighting changes in market liquidity over time and potential differences in liquidity risk exposure among managers. While smaller managers consistently demonstrate greater trading capacity, we observe significant improvements in liquidity conditions over the two decades under review. Specifically, there is a notable increase in the percentage proportion of the opportunity set that can be traded out within 30, 60, and 90 days. However, the extent of this improvement varies across manager sizes, with larger managers experiencing more pronounced gains in trading capacity compared to their smaller counterparts. This increase in liquidity could be attributed to several factors, as over time, financial markets may become more liquid and efficient, leading to improved trading conditions for asset managers.

Factors such as advancements in technology, regulatory reforms, and increased investor participation can contribute to enhanced market liquidity, allowing for smoother trade execution and reduced trading frictions.

The expansion of market participants, including institutional investors, hedge funds, and algorithmic traders, may also have bolstered trading activity and liquidity. Greater market depth and breadth enable asset managers to access a larger pool of
liquidity, facilitating faster and more efficient trade execution. Despite the overall improvement in market liquidity, the extent of this enhancement may vary across manager sizes. Larger managers, with greater resources and market influence, may have been better positioned to leverage improvements in market liquidity, resulting in more pronounced gains in trading capacity compared to their smaller counterparts. Moreover, the opportunity sets of larger managers are often limited to large-cap stocks, which tend to be highly liquid compared to the small and mid-cap companies within the opportunity sets of smaller managers. This disparity in liquidity access underscores
the ongoing challenges smaller managers face in efficiently executing trades and navigating liquidity constraints, despite broader market improvements.

Table 2: Proportion of portfolio that can be traded out

Source: Momentum Investments Group

Benchmark relative analysis

Expanding on the analysis, we explore alternative definitions of the opportunity set to gain deeper insights into the implications for asset managers of different sizes. Firstly, we consider a scenario where managers are restricted to holding securities at benchmark weightings, effectively mirroring the composition of the ALSI. Under this framework, all managers have access to the full investable universe. However, adherence to benchmark weights inherently limits the potential for above-benchmark performance, constraining managers’ ability to capitalise on alpha-generating opportunities.

Figure 5: Opportunity set industry concentration in 2023

Source: Momentum Investments Group

In contrast, we investigate the implications of overweighting benchmark positions by 5%, allowing managers to deviate from benchmark weights in pursuit of potential outperformance. Despite this strategic adjustment, our analysis reveals that the concentrated nature of the ALSI, with the top 10 companies accounting for over 45% of the index, significantly constrains the opportunity set. As a result, the difference in opportunity set size between holding an absolute 5% compared to overweighting the index by 5%, is marginal.

Larger managers continue to face constraints, with access limited to only 24 companies, while smaller managers retain access to the full 127 companies within the index. Thus, while overweighting benchmark positions may offer some latitude for active management, the inherent concentration of the ALSI limits the extent to which managers can diversify their portfolios and access new investment opportunities, underscoring the enduring challenges faced by larger managers in navigating constrained opportunity sets.

Conclusion

The findings of our analysis carry significant implications for asset managers, investors, and industry stakeholders alike. Understanding the nuanced dynamics of opportunity sets across different manager sizes can inform strategic decision-making and portfolio construction strategies. While larger managers grapple with the challenge of navigating a constrained universe of investment options, smaller managers can leverage their flexibility to explore a broader array of opportunities.

Our analysis also underscores the importance of agility and adaptability in the ever-evolving landscape of asset management. Rather than being solely dictated by the size of AUM, success in the industry hinges on the ability to identify and capitalise on opportunities, irrespective of organisational scale.

Our comparative analysis sheds light on the intricate relationship between AUM size and the opportunity set available to asset managers within the ALSI. By unravelling these dynamics, we aim to provide actionable insights that empower industry participants to navigate the complexities of the South African equity market with confidence and foresight. Additionally, a potential avenue for future research could involve investigating the ability of asset managers to extract factor premia based on these opportunity sets. This analysis could provide valuable insights into the effectiveness of different manager sizes in capturing factor-based returns and optimising portfolio performance.

Click here to get your latest edition of Mindfields, our research publication for more research articles.

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SARB interest rate decision: Not quite there, yet

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Carmen Nel, Economist and Macro Strategist, Matrix Fund Managers

24 November, 2022: The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) opted to hike the repurchase rate by 75 basis points (bp) to 7.00% today. While the tone of the statement and the post-meeting Q&A was hawkish, the voting breakdown shifted towards the dovish (or rather less hawkish) side with the voting split 3:2 for 75bp versus 50bp. In the September MPC meeting, two members would have preferred a rather aggressive 100bp increment.

Heading into the meeting, the market’s pricing was split between a 50bp and a 75bp outcome, so the reaction from the rand and rates was minimal following the announcement. The forward rate agreements (FRA) curve flattened marginally, while the yield and swap curves were steady. The rand was also unaffected by the outcome, but has been trading slightly weak relative to the level on the US Dollar Index (DXY).

Relative to the SARB’s Quarterly Projection Model (QPM), the November rate hike was another front-loaded move. According to the QPM, the projected repo rate for the fourth quarter of 2022 was 6.30% compared to the 7.00% outcome from today’s decision. This reflects the committee’s views that upside inflation risks outweigh the weaker growth outlook. All else assumed equal, this front-loading should contribute to a stronger recovery in the exchange rate, weaker growth, and a lower inflation profile than projected by the QPM.

At 7.00%, the repo rate is in line with the steady state in nominal terms. However, with inflation running well-above target, the real policy rate is deemed accommodative. The MPC views the current monetary policy stance as being supportive of the economy and credit growth.

Given elevated uncertainty on the global and local inflation outlooks with concern focused on broadening pressures and the risk of inflation persistence, the SARB seems willing to take the policy stance into restrictive territory. As such, a further interest rate increase at the January meeting should be the base case.

The size of that increase will depend on how quickly inflation rolls over from the upside surprise in the October release, the details of the BER’s Q4 inflation expectations survey results, and the tone of the Federal Open Market Committee’s (FOMC’s) statement and press conference in December. Given the voting breakdown and the cumulative policy action implemented so far, a 50bp hike will be the most likely outcome. However, we cannot rule out a smaller hike of 25bp or even a pause, should it become clear that global growth strain and more rapid disinflation are set to ease local price pressures.

The market is currently pricing in a cumulative 50bp in hikes by March next year, which reflects the risk for a 25bp hike rather than a 50bp hike in January.

Ends


Caption: Carmen Nel, Economist and Macro Strategist, Matrix Fund Managers

An overly positive budget update amid significant uncertainty

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Carmen Nel, Economist and Macro Strategist, Matrix Fund Managers

26 October, 2022: Finance Minister Enoch Godongwana’s second Medium Term Budget Policy Statement (MTBPS) painted a very positive picture of the medium-term fiscal position. Not only does the National Treasury intend to move to a primary budget (revenue less non-interest expenditure) surplus in FY23/24, it aims to grow the surplus over time. In so doing, it hopes to stabilise the debt ratio at 70% of GDP in the medium term, and to outright lower the ratio from FY26/27 onwards.

Rose-tinted glasses

We think there may be too much optimism embedded in these projections. This may be merely a placeholder budget, albeit on the bullish side of the risk distribution, given significant events between now and the February 2023 Budget Statement. Importantly, the ANC elective conference in December would affect the politics of the February budget, which may have constrained the ability and willingness to be more explicit on certain expenditure or revenue items. In addition, the Financial Action Task Force (FATF) grey-listing process is set to be concluded by February, which may also have received outsized attention in the lead up to the MTBPS.

The presentation of the current fiscal year was more realistic. The tax revenue overrun is estimated at R83.5bn, with the bulk coming from corporate income tax receipts, which is no surprise in light of elevated commodity prices and strong earnings rebound. Yet, more broadly, revenues have been doing well thanks to the wage recovery, better import growth, and stronger VAT receipts (even when adjusting for refunds). The deficit was revised from 6.0% of GDP to 4.9%, which was within the consensus forecast range. The market may find it difficult to believe that the government will be able to narrow the deficit to 3.2% of GDP by FY25/26.

There are few reasons for circumspection:

·       The Treasury expects growth to hold up (around 1.8% over the medium term) despite the current slowdown in the global economy, with some of the world’s largest economies – such as Germany and the UK – already skirting with recession. As growth in China and the US move well below trend, it is difficult to see how SA’s growth will hold up when we add in domestic monetary policy tightening and what seems to be a commitment towards fiscal consolidation.

·       Linked to more sustained, albeit still pedestrian, growth, the revenue overrun is carried forward to a large extent, which assumes either a longer-term tailwind from elevated commodity prices or better revenue collection elsewhere. While we agree that capacity rebuilding at SARS is bearing fruit, it may be a tall order to rely on this to sustain revenue at over 25%/GDP, which is well above the pre-Covid level of around 23.5% – 24.0%.

·       The FY23/24 numbers include the extension of the SRD grant (for 12 months to March 2024), but there is no provision thereafter for a permanent replacement grant.

·       The FY22/23 wage bill does not reflect the current, albeit partly, settled wage agreement of a 3% increase over and above the 1.5% pay progression and cash gratuity.

·       The Eskom debt swap is still short on detail and these additional funding costs are not yet included in the medium term expenditure framework. Granted, the debt transfer should limit the need for further equity injections and so reduce the funding associated with bailouts, but the debt that the government will take on will be more expensive than that issued by the government directly and so will add to the debt service bill.

But some room for comfort

Admittedly, there is a small cushion built into the numbers with unallocated reserves of R41.3bn in FY24/25 and R47.3bn in FY25/26.

There was conditional state-owned enterprise (SOE) support of R23.7bn for SANRAL, R5.8bn for Transnet, and R3.6bn for Denel. However, Eskom did not receive additional funding over and above what was budgeted in February. The government has committed to a debt swap with a vague quantum of around R130bn – R260bn, but given the composition of Eskom’s debt – ranging from ZAR to USD denominated, guaranteed to unguaranteed, and listed to DFI loans – ironing out the details will be no easy task.

The fixed income market might be somewhat disappointed by the lack of detail on the Eskom debt swap, as well as the fact that domestic fixed-rate and inflation-linked bond issuance will be left unchanged. Rather, the revenue overrun and excess cash balances will be used to lower foreign borrowing, as well as floating-rate issuance. This is potentially a missed opportunity for the government to lower the supply indigestion in the domestic bond market, given that issuance is being done at a substantial discount compared to a relatively tight spread on the 5-year government floating-rate note. Alternatively, the government may use the floating-rate note as a flexible issuance tool on an ad hoc basis and give the market certainty in keeping the fixed-rate and inflation-linked bond issuance unchanged.

Expenditure ceiling raised … again

The overarching negative message from the MTBPS was that the commitment to the expenditure ceiling should be questioned, as this has turned into a soft rather than a hard fiscal rule. It has been raised yet again, by R51.6bn in FY23/24 and R57.9bn in FY24/25. In addition, the line in the sand on SOE support has again been crossed.

Where we could be too pessimistic is on medium-term fixed investment growth and the government’s ability (and willingness) to crowd in the private sector. A stronger growth outlook would also be more plausible if there is clear evidence that deep-seated reforms are accelerating.

Overall, markets react positively

On the surface it looks as if the markets reacted positively to the MTBPS, but closer inspection reveals that the rally in SA’s bond yields have been driven more by the decline in US yields, while the stronger rand has been a function of the weaker dollar.

Within equities there seems to be more evidence of the beneficial budget, with banks doing relatively well, but on the whole, the local bourse as has also benefited from lower US bond yields, a weaker US dollar, and higher commodity prices.

Even though offshore drivers are dominating local market performance in recent trading sessions, this budget may be enough to keep the bond vigilantes at bay until the hard decisions are taken.

Ends

Declaration of Crypto Assets as a financial product

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Declaration of Crypto Assets as a financial product

The Financial Sector Conduct Authority (FSCA) has published the declaration of Crypto Assets as a financial product under the FAIS Act, which was gazetted on 19 October 2022. The declaration, brings providers of financial services in relation to crypto assets within the FSCA’s regulatory jurisdiction.

On 20 November 2020, the FSCA published a draft Declaration of Crypto Assets as a Financial product under the FAIS Act, for public consultation. A total of 94 individual comments were received from 22 different commentators. Following this public consultation process, the FSCA published the final Declaration in the Government Gazette
and on the FSCA’s website.

The FSCA has also published a Policy Document supporting the Declaration. The Policy Document provides clarity on the effect of the Declaration, including transitional provisions, and the approach the FSCA is taking in establishing a regulatory and licensing framework that would be applicable to Financial Services Providers (FSPs) that provide financial
services in relation to Crypto Assets.

In addition to the Declaration and Policy Document, the Authority also published a general exemption for persons rendering financial services (advice and/or intermediary services) in relation to Crypto Assets, from section 7(1) of the FAIS Act.

The intention of the exemption is the following:

• To facilitate transitional arrangements for existing providers of crypto asset activities. The transitional arrangements entail that a person may continue to render financial services in relation to crypto assets without being licensed, provided that such person applies for a licence under the FAIS Act within the period specified in the exemption. The stipulated period is 1 June 2023 until 30 November 2022. The exemption will apply until the licence application submitted has been approved or declined; and
• To exempt certain ecosystem participants from the FAIS Act. These participants are crypto asset miners and node operators performing functions in respect of the security and health of the network as well as persons rendering financial services in relation to non-fungible tokens1.

To facilitate the application of an appropriate regulatory framework for Crypto Asset FSPs once licensed, the FSCA also published a Draft Exemption of Persons rendering Financial Services in relation to Crypto Assets from Certain Requirements. The draft exemption proposes to exempt licensed Crypto Asset FSPs and their key individuals and representatives from certain requirements of, amongst others, the General Code of Conduct for Authorised Financial Services Providers (General Code) and their
Representatives and the Determination of Fit and Proper Requirements, 2017 (Fit and Proper requirements). Requirements contained in the General Code and Fit and Proper requirements will apply to all Crypto Asset FSP’s once licensed, except those requirements that they are exempted from in terms of the draft General Exemption.

The draft General Exemption has been published for public comment pending finalisation, to solicit stakeholder inputs on the proposed regulatory framework that will apply to licensed Crypto Asset FSP’s. Submissions on the draft Exemption must be made using the
submission template available on the FSCA’s website and be submitted in writing on or before 1 December 2022 to the FSCA at FSCA.RFDStandards@fsca.co.za.


ENDS


Enquiries: Financial Sector Conduct Authority
Email address: Communications@fsca.co.za
Telephone: 0800 203 722

1 The terms crypto asset miner, node operator and non-fungible token are defined in the published Exemption of persons rendering financial services in relation to crypto assets from section 7(1) of the Financial Advisory and Intermediary Services Act, 2002.

Crypto assets now included under definition of financial products in South Africa

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By Ashlin Perumall, Partner, Baker McKenzie Johannesburg

FSCA Declaration
 
Crypto assets are now regulated as financial products in South Africa. On 19 October 2022, the Financial Sector Conduct Authority (“FSCA”), South Africa’s financial institutions regulator, issued a declaration (“Declaration“) that crypto assets are now included under the definition of ‘financial products’ in terms of the Financial Advisory and Intermediary Services Act, 2002 (“FAIS”). The Declaration also provides a wide definition for crypto assets, being a digital representation of value that:

  • is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment or other forms of utility;
  • applies cryptographic techniques; and
  • uses distributed ledger technology.

The effect of the Declaration is that any person who provides advice or renders intermediary services in relation to crypto assets must be authorised under the FAIS Act as a financial services provider, and must comply with the requirements of the FAIS Act. Under FAIS, ‘advice’ includes recommendations, guidance or proposals of a financial nature furnished by any means or medium in respect of a defined financial product. ‘Intermediary service’ includes any act other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier with a view to:

  • buying, selling or otherwise dealing in (whether on a discretionary or non-discretionary basis), managing, administering, keeping in safe custody, maintaining or servicing a financial product purchased by a client from a product supplier or in which the client has invested;
  • collecting or accounting for premiums or other moneys payable by the client to a product supplier in respect of a financial product; or
  • receiving, submitting or processing the claims of a client against a product supplier.

 
Exemption Application
 
Ordinarily, in terms of section 7 of FAIS, a person may not act or offer to act as a financial services provider unless such person has been issued with a licence by the FSCA. The FSCA has set applicable licences which an FSP would generally require, which are divided into different categories of licences. The full list of categories can be found here. However, on 19 October 2022, the FSCA also published notice 90 of 2022 exempting certain persons who render a financial service in relation to crypto assets from the application of section 7(1) of FAIS. In order for the exemption to apply, the relevant persons are required to comply with the following:

  1. submit an application to the FSCA between 1 June 2023 and 30 November 2023
  2. comply with:
    1. chapter 2 of the Determination of Fit and Proper Requirements for Financial Services Providers, 2017
    2. section 2 of the General Code of Conduct (“GCC”)
    3. all other requirements in the GCC excluding section 13.

The exemption is also subject to the condition that the relevant applicant must provide the FSCA with any information it requests that is in the possession of, or under the control of, the applicant, that is relevant to the financial services and/or similar activities rendered by such applicant. This application must be made by persons seeking an exemption by 1 December 2023. This exemption excludes persons categorised as crypto asset miners, node operators, and financial services in relation to non-fungible tokens, in respect of whom it is already deemed to apply.

As can be seen from the breadth of the legislative framework underpinning ‘financial products’ under FAIS, the consequences of the Declaration will be far reaching, and will impact many businesses in South Africa dealing in crypto assets. When the draft of the Declaration was published in November 2020, it was noted that the intention behind the Declaration was to capture intermediaries that advise on or sell crypto assets to consumers, so as to provide adequate protection for consumers who are advised to purchase these products. Businesses in this space that have until now been operating in a largely unregulated environment will need to move quickly to become compliant.

end
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The New York Stock Exchange and The Johannesburg Stock Exchange Announce Collaboration on Dual Listings

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NEW YORK & JOHANNESBURG, 10 October 2022 — The New York Stock Exchange, part of Intercontinental Exchange, Inc. (NYSE: ICE), and the Johannesburg Stock Exchange (JSE) today announced that they have signed a memorandum of understanding to collaborate on the dual listing of companies on both exchanges.

The NYSE and the JSE also agreed to jointly explore the development of new products and share knowledge around ESG, ETFs and digital assets.

The agreement was finalized during a visit to the NYSE by a South African delegation including JSE Group CEO Dr. Leila Fourie and South African Reserve Bank Governor Lesetja Kganyago. The signing ceremony took place shortly before the delegation rang the Closing Bell, followed by a keynote address by Kganyago on monetary policy.

“The New York Stock Exchange is pleased to sign this collaboration agreement with the Johannesburg Stock Exchange in support of the important economic and trade relationship between our two markets,” said Lynn Martin, NYSE President. “Exploring the dual listings of companies on our two exchanges stands to increase opportunities for investors on both continents, underscoring the value public companies and our capital markets generate in the global economy. We look forward to collaborating on new product development with the JSE team and to the innovation that comes when two great organizations work together.”

“The agreement that we have signed today with the NYSE will unlock opportunities for investors and issuers of both bourses,” said Dr. Fourie. “This is the beginning of a new chapter and I am excited about the opportunities we will explore together as we find synergies to grow both our markets. For the JSE, as the largest stock exchange on the African continent with unparalleled market depth and liquidity, we aim to create world-class solutions for both local and international investors.”

The United States ranks as one of South Africa’s largest trading partners and this agreement is designed to help support the economic relationship between the two nations. Today, about 600 U.S. companies operate in South Africa in sectors including manufacturing, technology, finance, insurance and wholesale trade.

About NYSE Group

NYSE Group is a subsidiary of Intercontinental Exchange (NYSE: ICE), a leading global provider of data, technology and market infrastructure. NYSE Group’s equity exchanges — the New York Stock Exchange, NYSE American, NYSE Arca, NYSE Chicago and NYSE National — trade more U.S. equity volume than any other exchange group. The NYSE, an ICE exchange, is the premier global venue for capital raising. NYSE Arca Options and NYSE Amex Options are leading equity options exchanges. To learn more, visit nyse.com.

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks to connect people to opportunity. We provide financial technology and data services across major asset classes that offer our customers access to mission-critical workflow tools that increase transparency and operational efficiencies. We operate exchanges, including the New York Stock Exchange, and clearing houses that help people invest, raise capital and manage risk across multiple asset classes. Our comprehensive fixed income data services and execution capabilities provide information, analytics and platforms that help our customers capitalize on opportunities and operate more efficiently. At ICE Mortgage Technology, we are transforming and digitizing the U.S. residential mortgage process, from consumer engagement through loan registration. Together, we transform, streamline and automate industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 — Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 3, 2022.

About the JSE

The Johannesburg Stock Exchange (JSE) has a well-established history of operating as a marketplace for trading financial products. It is a pioneering, globally-connected exchange group that enables inclusive economic growth through trusted, world-class, socially responsible products, and services for the investor of the future. It offers secure and efficient primary and secondary capital markets across a diverse range of securities, spanning equities, derivatives, and debt markets. It prides itself on being the market of choice for local and international investors looking to gain exposure to leading capital markets on the African continent. The JSE is currently ranked in the Top 20 largest stock exchanges in the world by market capitalisation, and is the largest stock exchange in Africa, having been in operation for 130 years. As a leading global exchange, the JSE co-creates, unlocks value & makes real connections happen.

www.jse.co.za 

NYSE Media Contact:

Bridget Walsh

bridget.walsh@nyse.com

(212) 656-2298

ICE Investor Contact:

Katia Gonzalez

katia.gonzalez@ice.com

(678) 981-3882

JSE General Enquiries:

Email: info@jse.co.za

011 520 7000

JSE Media Contact:

Paballo Makhetha

Communication Specialist

011 520 7331

066 261 7405 (mobile)

paballom@jse.co.za

BCBS-CPMI-IOSCO finalise analysis of margining practices during the March 2020 market turmoil

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  • Global standard setters publish a report on margin practices, highlighting the need for further policy work.
  • The report presents a data-driven analysis examining margin calls in March and April 2020 and the extent to which market participants were prepared to meet them.
  • The report recommends further policy work in six areas.

The Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) (the standard setters) today published the report Review of margining practices.

The report feeds into the Financial Stability Board’s work programme to enhance the resilience of the non-bank financial intermediation sector. It looks at margin calls during the high market volatility and “dash for cash” in March and April 2020. It also reviews margin practices transparency, predictability and volatility across various jurisdictions and markets, as well as market participants’ preparedness to meet margin calls.

The report builds on the consultative report Review of margining practices published in October 2021, which in particular was based on surveys of central counterparties (CCPs), clearing members and broker-dealers, clients (ie entities that participate in these markets through an intermediary) and regulatory authorities, and other data analyses. It takes into account the feedback received on the consultative report, including through a series of stakeholders outreach events, confirming that:

  • Variation margin calls in both centrally and non-centrally cleared markets in March were large, and significantly higher than in February 2020. The peak CCP variation margin call was $140 billion on 9 March 2020.
  • Initial margin requirements for centrally cleared markets increased by roughly $300 billion over March 2020, and varied substantially across, and within, asset classes.
  • Initial margin requirements on non-centrally cleared derivatives remained relatively stable during the stress period.

A summary of the feedback received has been published alongside the report.

On the back of the analysis, and taking into account feedback from industry, the report confirms six areas for further policy work on:

  • Increasing transparency in centrally cleared markets.
  • Enhancing the liquidity preparedness of market participants as well as liquidity disclosures.
  • Identifying data gaps in regulatory reporting.
  • Streamlining variation margin processes in centrally and non-centrally cleared markets.
  • Evaluating the responsiveness of centrally cleared initial margin models to market stresses, with a focus on impacts and implications for CCP resources and the wider financial system.
  • Evaluating the responsiveness of non-centrally cleared initial margin models to market stresses.

Notes to editors:

Margin is collateral and funds that are collected to protect against future or current risk exposures resulting from market price changes or in the event of a counterparty default.

KPMG Insurance Survey 2022: The insurance industry sees strong growth despite tough market conditions

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21 September 2022; KPMG South Africa today launched its annual South African Insurance Industry Survey for 2022. 34 non-life insurers, 19 life insurers and four reinsurers were surveyed. The results indicate that while the reinsurance market in South Africa has had a rough ride, the overall insurance industry has had a better-than-expected year – with strong gains in both the life and non-life sectors. However, there are some very real risks that face the sector over the next year and looking forward, including economic volatility, ever increasing evidence of climate change, a much-needed focus on ESG reporting, support and understanding as well as understanding how to navigate South Africa’s social cohesion challenges.

“It is great to see in this year’s survey that the non-life and life insurers have bounced back nicely after the pandemic and have shown strong recovery at the top and bottom lines – creating a strong base from which the industry is able to enter what seems to be the end of the pandemic,” says Mark Danckwerts, Partner: KPMG Africa insurance practice leader.

Non-life insurance industry

Following the significant volumes and values of business interruption claims in 2020 because of the Covid-19 pandemic, the non-life insurance industry presented robust 2021 results, with the sector increasing profits by more than double the 2020 figures to R12.1 billion.

The industry reported gross written premiums (GWP) of R131.6 billion, an increase of 7% from the prior year. The ten largest non-life insurers, when measured on GWP, have a market share of 76.5%. There were marginal shifts in this space with Escap moving into the top ten, Centriq Insurance Company Limited moving down to the tenth position and Mutual and Federal Risk Financing Limited moving out of the top ten into eleventh position.

GWP growth for the sector exceeded headline CPI of 5.9%, with five insurers outperforming the GWP growth rate of 7%; these are Escap SOC Limited (Escap), Guardrisk Insurance Company Limited (Guardrisk), Discovery Insure Limited (Discovery), Bryte Insurance Company Limited (Bryte) and Lombard Insurance Company Limited (Lombard). Growth came from diversifying client bases and improved new business volumes. In this period Discovery Insure reported its lowest lapse rate since inception; 2% lower than the previous year.

The sector has shown incredible resilience by getting back to pre-pandemic results, with profit after tax increasing by 110% from R5.6 billion to R11.7 billion, largely as a result of a decreased industry loss ratio of 57% (61% in 2020).

“While the non-life industry has had a strong year – the pressure is on to remain resilient. Increasing crime, weather-related catastrophe events, the continued erosion of social cohesion in South Africa, and supply chain and power supply disruptions, all paint a picture that will require tenacity, skill and an increased focus on loss-preventing technology,” says Danckwerts.

Life insurance industry results

“While life insurers faced another turbulent year, the industry experienced improvements in the volume and profitability of new business and welcomed a positive lapse experience and better equity and bond market performance. The industry demonstrated its resilience once again and was able to remain well capitalised to meet policyholder obligations,” says Danckwerts.

In 2020, several life insurers reported having paid or accrued for more claims than ever before, resulting in an overall loss of R5 billion. The life insurance industry has done well to return to profitability in 2021, reporting healthy profits of R17.1 billion. ASISA reported a 17% increase in new individual recurring premium risk policies and a reduction of 28.8% in lapsed policies.

“It is important to note however, that for many life insurers’ results have not yet returned to pre-pandemic levels and these insurers would need to refocus efforts on other drivers of profitability such as digital innovation, cost optimisation and pricing reviews,” says Danckwerts.

Reinsurance industry results

While the primary insurance industry was sufficiently protected by the reinsurance industry through the robust reinsurance structures and arrangements in place, there is no doubt that the reinsurance industry bore the brunt of the loss events that occurred during 2020 and 2021. With GWP growth of only 1%, an 11% decline in investment income and underwriting losses from all surveyed reinsurers (R3.8 billion), it is safe to say that the reinsurers did not recover well following Covid-19 related business interruption claims from non-life insurers and increased mortality experience by life insurers.

“The reality is that while reinsurers writing life insurance risks were hit much harder than non-life insurance risks, it was a tough year all round for both. Consequently, we have seen the hardening of reinsurance rates in 2022.”

“This year’s survey has shown us once again how the insurance sector has, at large, shown resilience in the face of adversity – a trend that has continued after our previous survey. However, to remain agile, insurers are going to have to consider the role they play in mitigating risk, in dealing with risk brought about by changing technology, social patterns and economic turbulence and in finding ways to innovate further to meet the unique challenges that the South African landscape presents,” concludes Danckwerts.

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South Africa: The unintended consequences of Most Favoured Nation Clauses in Tax treaties

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By Francis Mayebe, Candidate Attorney, overseen by Virusha Subban, Partner and Head of Tax, Baker McKenzie Johannesburg

Background

Bilateral tax treaties are mainly based on the principle of reciprocity. Under this principle, one state negotiates better treaty terms with another in exchange for making a particular concession. As is clearly seen in most protocols, the Most Favoured Nation (MFN) clause is usually included as a concession by a developing state looking to renegotiate particular treaty provisions. An illustration of this can be seen in the inclusion of the MFN clause in South Africa’s protocols with the Netherlands and Sweden, as it was negotiating to include withholding tax on dividends.

The broad rationale behind MFN clauses stems from the field of foreign direct investment. Throughout history, the MFN clause has seldom been accepted as a principle to be included in tax treaties. It is indisputable that the MFN clause comes with some benefits, however, its downfalls are significant. The most significant of these being that the clause creates various opportunities for the reduction of source taxation and that it exposes the source states, which are usually developing countries, to large-scale base erosion of taxes. To illustrate this, we analyse two court cases involving the Netherlands, South Africa and India.

A judicial perspective

In ABC (PTY) ltd v C: SARS 2019, the taxpayer sought to receive beneficial treatment from the South African and Kuwait Double Taxation Agreement (DTA), which provided an exemption from the dividends withholding tax. The basis for this claim had come about through a technical flaw in the wording between Sweden and South Africa’s DTA, which omitted the words “after the date of this convention”. As a result of this wording, treaty benefits afforded to another State by South Africa that are more favourable than those in the DTA with Sweden triggered the MFN clause. In effect, the exemption to withholding tax on dividends in the Kuwait DTA would automatically apply to the Swedish DTA. 

The ripple effect of this clause is that all other States with an MFN clause, like the Netherlands in this instance, could claim the same exemption afforded in South Africa and Sweden’s DTA.

It is on this basis that the taxpayer argued that the exemption of withholding tax on dividends should apply to Dutch residents, by virtue of the MFN clause, in their tax treatment with South Africa.

The tax court found in favour of the taxpayer and instructed the South African tax authorities to provide refunds to all withheld dividend taxes to Dutch residents. Therefore, the technical or unforeseen error in the MFN clause between South Africa and Sweden resulted in a huge fiscal loss of revenue for South Africa. This case clearly demonstrates the dangers of unintended consequences that come with the inclusion of the MFN clause in tax treaties.

In the case of Concentrix Services Netherlands BV WP and Optum Global Solutions International BV WP (C) the court again found in favour of the taxpayer, who was a Netherlands tax resident. This resulted in the application of a lower withholding tax of 5%, as was applied in India and Slovenia Double Taxation Avoidance Agreement (DTAA), based on the MFN clause contained in the Indian and Netherlands DTAA.

A turning point, in this case, was a condition that required the third state to be an Organization for Economic Cooperation and Development (OECD) member before or at the time the DTAA was signed between the third state and India. However, the court held a contrary view, to the effect that the condition would only be fulfilled at the time the MFN benefit was claimed and not after the treaty. This interpretation, in our view, goes beyond the scope of the ambits of the MFN clause and its intended purpose when the tax authorities included it. This largely broad interpretation violates the principle of good faith as enshrined in the Vienna Convention on the Law of Treaties (VCLT).

This case demonstrates a clear downfall of the MFN clause in that it may result in unintended consequences due to the uncertainty posed by its interpretation, particularly in the judiciary. 

Practical comments

As can be deduced from the above discussion, the MFN clause infringes on the fundamental principle of the “Pacta sunt servanda” as enshrined in Article 26 of the VCLT. It infringes this principle by altering treaty provisions that are decided upon and conceded bilaterally by states during treaty negotiation by invoking future benefits or treaty terms that go beyond the original terms agreed upon by the states in their DTA.

These unforeseeable future treaty benefits have serious repercussions for states that would not gain from the invoked benefits. As already seen after the ABC v SARS decision, the MFN clause significantly increased investment flow through South Africa and the Netherlands due to the zero-rated withholding tax on dividends, thus increasing treaty shopping and significantly reducing South Africa’s collectible tax revenue on the declared foreign dividends.

Therefore, states negotiating or renegotiating their DTAs, including the MFN clause, should exercise caution when drafting the clause, and undertake a rigorous assessment of its impact on their tax treaties within their network prior to ratifying it.

Including direct shares in your retirement annuity

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Including direct shares in your retirement annuity
By Schalk Louw, portfolio manager at PSG Wealth

Is it possible to structure your RA in such a way that you can invest in direct shares? The answer is yes, but unfortunately most people don’t know this.

A Personal Share Portfolio (PSP) allows you to tailor your own bespoke share portfolio as part of your retirement investment strategy. Most RA platforms in South Africa now offer the solution for a portfolio manager to choose a selection of local and international shares, which, as a direct share portfolio, can be included in your retirement annuity investment and be actively managed. This solution offers quite a few advantages, including: 

Tax advantages

No capital gains tax or income tax is payable within a retirement annuity, so you can have exposure to direct shares within your RA, without the usual tax implications attached to a separate direct equity portfolio (which does not form part of your RA). 

Personal attention

Unlike most asset management companies, many stockbroking companies offer you direct access to portfolio managers.

Cost-effectiveness

The current average total expense ratio for general equity unit trusts amounts to 1.56% per year with additional performance fees attached to many of these funds. In most cases, personal share portfolio management fees start from 1.15% (incl. VAT), which can be reduced on a sliding scale based on the value of your portfolio, with no performance fee charges. These fees will vary from provider and provider, and you need to negotiate the fees with your portfolio manager, so be sure to do some homework before you commit. Also bear in mind that a certain minimum portfolio size should be reached before it becomes viable and suitably diversified.

Estate planning

RAs hold many advantages for estate planning, including a potential 3.5% saving in executor’s fees. 

One of the main advantages of an RA that is also invested in direct shares is probably the fact that you have more control over your investment composition. The reason for this is that any RA is subject to Regulation 28 of the Pension Funds Act. According to Regulation 28, there are certain restrictions in terms of the weights you are allowed to allocate to different asset classes within an RA. 

Based on historical data, it is a well-known fact that shares held within an RA certainly offer the best long-term growth potential. For a young investor looking to invest directly in shares, the problem is two-fold. Firstly, Regulation 28 restricts the investment in direct shares (both locally and offshore) within a RA to 75%. 

Another problem is that if you choose to invest in equity-based unit trust funds, you should know that very few of these funds can actually invest 100% of the fund in direct shares, simply because of cost recovery and the fact that it has to have the capacity for withdrawals to be made.

By including an extra layer of unit trusts in your RA, the possibility of you reaching that 75% is unlikely. By investing directly in shares, however, you have more control, which means that you can reach your 75% target. 

The good news is that this option is now available to most investors, which can definitely give your RA a huge boost in terms of performance. 

Inflation Targeting: What It Could Mean for the Rand and More

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Inflation Targeting: What It Could Mean for the Rand and More
Bianca Botes, Director at Citadel Global

Forex expert Bianca Botes of Citadel Global weighs in on the possible effects of inflation targeting on South Africa’s monetary policy, interest rates and rand exchange rates.

A move by the South African Reserve Bank (SARB) and Treasury to lower the country’s inflation target could have positive impacts on monetary policy, interest rates, and the strength of the rand, but will need to be handled with care to avoid negative consequences on the local investment climate, according to Citadel Global.

SARB Governor Lesetja Kganyago recently argued for a lower inflation goal, noting that SA’s inflation target is relatively high compared to other emerging markets and advanced economies.

“While the move would likely benefit the broader economy, consumers may see slower rising prices as well as slower wage growth. Businesses, on the other hand, may benefit from slower wage growth and greater economic stability,” Bianca Botes, Director at Citadel Global.

“The move would align South Africa (SA) with global peers who maintain lower inflation goals. This has already boosted the rand to its strongest level against the dollar in the past two months.”

Unpacking what the intervention could mean for businesses and investors, Botes says it is likely that SA will see very careful adjustments to interest rates, a further strengthening of the rand and a stabilising effect on the economy, but if not handled very carefully, it could dampen infrastructure investments, in particular.

INFLATION’S IMPACT ON INTEREST RATES 

“A lower inflation target would likely influence the SARB’s approach to interest rates. While a stricter target might suggest tighter monetary policy to keep inflation low, current analysis suggests that the SARB may not necessarily raise interest rates aggressively,” says Botes.

“Instead, the central bank might adopt a more cautious stance on rate hikes and cuts, focusing on maintaining inflation within the new, narrower target. This could mean more gradual adjustments in interest rates, aiming to balance inflation control with economic growth and employment objectives.”

HOW AN INFLATION SHIFT COULD IMPACT THE RAND  

“The rand’s value is closely linked to inflation and interest rate dynamics. A credible commitment to a lower inflation target could strengthen the rand by boosting investor confidence and improving returns on rand-denominated assets. This was evidenced yesterday when the rand surged upon market optimism about improved monetary policy credibility and economic stability,” says Botes.

BROADER ECONOMIC IMPLICATIONS OF LOWERED INFLATION

“Lower inflation targets tend to reduce inflation expectations, which can moderate wage and price increases, helping to stabilise the economy. Research into SA’s experience with moving the inflation midpoint to 4.5% shows that such shifts can be achieved without sacrificing Gross Domestic Product (GDP) growth or increasing unemployment, provided the central bank maintains clear communication and credibility. This suggests that a further reduction in the inflation target could be managed with minimal economic disruption,” Botes advises.

WARNING OF UNINTENDED CONSEQUENCES ON INVESTMENT GROWTH 

“While this move could lead to more cautious interest rate policies and strengthen the rand, it requires balancing inflation control with growth and investment needs. The ultimate impact will depend on the clarity of communication, policy credibility, and the broader economic environment,” Botes cautions.

This comes as the SARB has warned that even a single-point inflation target requires careful calibration to avoid unintended consequences, such as restricting infrastructure investment or economic activity. “The flexibility inherent in the current target range allows for temporary deviations, which might be constrained under a tighter target regime,” says Botes.

BACKGROUND ON SA’S INFLATION TARGETING

Since 2000, SA has operated under an inflation-targeting framework, with a target range of 3% to 6% for headline consumer price inflation. This target is set by the Minister of Finance, Enoch Godongwana, in consultation with the SARB Governor, Lesetja Kganyago and the SARB independently implements monetary policy, primarily through controlling short-term interest rates, to keep inflation within this range. The Monetary Policy Committee has emphasised aiming for the midpoint of 4.5% since 2017, reflecting a more precise inflation goal within the range.

Mistakes Made by Investors – Part 2 (Continued)

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Mistakes Made by Investors – Part 2 (Continued)
By Clarke Chesango, MIFM

Investors in the stock markets are protected from fraud and illegal activities by relevant independent government agencies. In South Africa we have the Financial Sector Conduct Authority (FSCA). The FSCA through the Financial Advisory and Intermediary Services Act (FAIS Act) obligates individuals and bodies to be registered and licenced before offering financial services. This creates confidence and integrity in the financial system and competitiveness in the global markets. The Johannesburg stock exchange (JSE) is well regulated and has attracted international capital thereby expanding and diversifying the investment base. This is attested by some foreign companies which have primary and or dual listings on the exchange.

Laws and regulations are protecting investors and the general public from malpractices and abuse by criminals in the investment space. The following are some of the mistakes made by investors:

Failure to understand legislation/Consumer awareness

Understanding legislation and how investors are protected from illegal activities in the financial markets will reduce losses and attendant costs. Investing in unregistered entities is against the law and investors will lose their hard-earned money as they are not protected by existing legal frameworks. It is of paramount importance that investors invest in comprehensive knowledge before committing their hard-earned financial resources into the markets. It is not only knowledge about investments in shares but also legal knowledge on the structure of financial markets. Before legislation is passed by parliament into law it is first sent to the public soliciting comments about its impact on the investment community and the public at large. Some investors do not even participate or follow the processes. An investor should participate so that they stay ahead and are better informed.

Reporting complaints

Treating customers fairly is the cornerstone of every company success story. Investors should be aware of how their respective stockbrokers and companies and the exchanges manage their complaints and the entire complaint management process. They should have easy access to company complaints management materials so that they are well informed. Confidence in the markets is key to encouraging other hesitant investors to come on board. The law obligates financial service providers to give customers available options for escalating their complaints in case internal complaints resolution has failed. In addition, the client should be made aware of the legal process required to approach external complaints resolution frameworks like the Ombud.

Placing orders

Some investors without the necessary knowledge just buy shares without following their needs, risk profiles and objectives. The right order type is dependent on each individual investor’s plan. For example, a market order will be filled at the current available price while a limit order will be filled at a specific price and quantity. Differences between these two order types boil down to strategy and objectives of the individual investor. Understanding each order type and how it fits into your investment plan and purpose is vital.

Risk management

Risk-mitigating portfolios to withstand volatility helps in achieving investment objectives. At the initiation of an order, investors can place stop losses to minimize losses within risk tolerance levels and appetite. In addition, the use of derivatives as risk mitigants is also important. For example, after buying shares in the stock market, an investor can also buy put options to protect the downside thereby minimizing losses. As the specific company’s shares price goes down, the loss is reduced by the gain in the put option position. This strategy caters well to crisis situations like recessions and financial crisises. Holding company shares also gives knowledgeable and sophisticated investors the ability to sell call options based on their current shareholdings. However margining requirements and unlimited losses with this strategy makes it costly and only a preserve of a few. In essence the idea is about protecting the value of your portfolio.

Red flags

A company may exhibit signs of weak fundamentals, an inability to innovate and continuous borrowing to cover or hide underlying problems. Deteriorating cashflow and liquidity imbalances are cause for concern. The informed investor should reallocate capital or exit the position.

Value trap

Buying shares in a company at low prices with promising growth but the company fails to deliver growth and improve its fundamentals due to weak management, poor strategy or obsolete technology.

Illiquid shares

Some company shares have low trading activity and wide bid-ask spreads, which signify illiquidity. If you buy these shares, your ability to exit the position may be limited, as there are likely to be few or no buyers.

Residual risk bearers

Investing in ordinary shares carries residual risk. In the event the company is liquidated, the sale of assets to pay off creditors will be prioritised according to prevailing loan agreements or a court process. However, shareholders will only be paid after all other creditors have been paid first. If the funds are inadequate to meet all liabilities, shareholders will bear the loss and their shares will be worthless. Investors need to know the processes of company liquidations, business rescue and the transition of public companies into private companies, along with the associated effects on their portfolio.

Capital gains

Investors should understand how gains are calculated on their portfolios. If you buy a share at R20 and the price moves to R30, the positive difference R10 is the capital gains. This will give them better control over their portfolios.

Dividends

Dividends are a source of income to investors, especially when investing in dividend aristocrats’ companies. These are companies that have been paying dividends consecutively for the past 25 years. Some pay dividends monthly, quarterly or annually. The investor can structure the dividend income strategy based on their objectives. It is important to have income every month which you can reinvest or withdraw funds as needed.

Annual general meetings

As a shareholder you are invited to attend company general meetings or extraordinary company meetings to pass special resolutions. This will give you the chance to ask pertinent questions about the company and vote on issues on the agenda. Interacting with other investors will add value and knowledge and expand your investment horizons. Attending is key in unlocking and soliciting answers from executives about strategy and innovation and ability of top management to steer the company through deteriorating economic environments. For example, the company might call for a special vote on additional fund-raising initiatives. As a shareholder it’s an opportunity to get clarification about the likely impact of every decision on your investments and you can strategize to neutralize the negative effects earlier. Some investors do not even follow calendar events for the company they are invested in thereby missing opportunities to augment their portfolios. In South Africa there is a Stock Exchange News Service (SENS) communication platform, where all public companies communicate with the public about sensitive company matters which affect investors.

Cyclical companies

There are seasonal companies which perform well in some seasons due to their nature or cycle of production or demand. Agricultural companies tend to do well during the farming season and perform badly thereafter. Share prices will therefore fluctuate depending on the season or cycle of production and demand. It is therefore vital that investors invest in companies they are knowledgeable about as well understanding their effects on the portfolio.

Green Economy

The world is transitioning to a low carbon environment due to dangers of climate change. This transition, along with accompanying regulations will make some companies assets redundant unless they can be multipurposed for other uses. An expert investor should be wary of available and impending legislation which could affect current portfolios negatively. Reallocating capital to suit the transition is likely to create wealth for alert investors.

Future of stock markets

With the emergence of innovation in blockchain, decentralisation and Artificial Intelligence there are bound to be changes in the structure of capital and stock exchange markets. Fractionalisation of shares in the cryptocurrency space creates more investors in the markets. Payment systems turnaround times are going to be reduced to same-day processing, creating more liquidity and market activity. However, there are more risks like regulatory gaps and investment scams. It is vital investors understand investment scams in the markets. The following link from the Financial Sector Conduct Authority is worth reading: https://www.fscamymoney.co.za/Financial%20Protection/More%20about%20Scams.pdf

Sources: FSCA Money

‘Unbankable’ to Unstoppable: Capitec’s Rise and the Reinvention of South African Banking

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‘Unbankable’ to Unstoppable: Capitec’s Rise and the Reinvention of South African Banking
Travis Robson CMgr MCMI (UK), MBA, FIFM, FTIP™

South Africa’s banking landscape has undergone a fundamental transformation. For decades, the “Big Four”—Standard Bank, Absa, Nedbank, and FNB—reigned supreme, focused on middle- to high-income customers and often overlooking the vast low-income market, considered too risky, too costly, or simply “unbankable.” But today, it’s Capitec that holds the crown as South Africa’s biggest bank by customer numbers (BusinessTech, 2025) —proving just how wrong that assumption was.

Capitec’s story is not just about size; it’s about the reshaping of what it means to be a bank in a digital, inclusive era. It’s also a masterclass in listening to the market (de Lange, 2013; Lourie, 2024).

The Myth of the “Unbankable”

Historically, banking in South Africa mirrored deep socioeconomic divides. Millions were left out of the formal financial system, either due to lack of documentation, irregular income, or the prohibitive costs of traditional banking. For legacy institutions, serving the low-LSM (Living Standards Measure) market simply didn’t make financial sense. The World Bank (2022) identified these barriers, such as a lack of access to banking facilities and financial products, as significant obstacles preventing many South Africans from formal financial inclusion. Additionally, research by Wentzel et al. (2016) found that socioeconomic factors, such as education and income levels, play a more crucial role than location in excluding large parts of the population from accessing financial services.

That thinking created a gaping hole in the market. And Capitec filled it.

Founded on 1st March 2001, Capitec didn’t just build a bank—it simplified what was overly complex, and used technology to drive down costs and pass those benefits to customers (Mthethwa, 2025).

A Model Built on Simplicity and Trust

Capitec’s early differentiator was simple pricing. While traditional banks layered fees on top of fees, Capitec offered one transparent account with low, flat charges and easy access (BlueAlpha Funds, 2019). More than just financial innovation, this was about dignity and giving people control over their money without the fine print.

Its branch design was also different with an open-plan, “consultative rather than transactional approach”. This design strategy was implemented to create a welcoming environment where customers feel more engaged and involved in their banking interactions.​ According to Capitec’s 2014 Integrated Annual Report, the bank introduced “side-by-side consulting” as part of its new branch design. This system-driven service flow enables clients to feel part of the service process, providing them with all the options and information needed to support decision-making.

And then came the tech. Capitec rapidly evolved into a digital-first institution, with a mobile app that’s now among the most used in the country. Today, the bank serves over 21 million clients, 12 million of whom actively use its app – a figure traditional players can only dream of (Capitec, 2025).

Challenging the Incumbents

Capitec’s rise forced the old guard to change. Suddenly, digital transformation wasn’t optional. Pricing strategies were re-evaluated. Innovation labs were born. And more importantly, banks started thinking differently about customer experience.

Standard Bank, recognizing the evolving digital landscape and shifting customer expectations, has been enhancing its digital platforms and customer engagement strategies. This evolution reflects a broader industry trend towards more user-friendly and accessible banking solutions, a movement significantly influenced by Capitec’s innovative approach (Louw & Nieuwenhuizen, 2020)

What was once considered an upstart is now the benchmark.

Financial Inclusion as a Growth Strategy

Capitec proved that financial inclusion isn’t charity—it’s smart business. The bank not only tapped into the mass market, but it did so profitably, with a lean cost base and robust credit controls. As a result, it now commands a significant share of the personal loan market, and is expanding into new verticals such as insurance and business banking.

More than anything, the bank’s rise illustrates that the future of banking in South Africa—and arguably the continent—belongs to those who can bridge the gap between scale, technology, and inclusion.

The Road Ahead

As South Africa’s digital economy accelerates, younger consumers increasingly demand seamless, personalised, and affordable banking services. Banks that fail to adapt risk obsolescence. Capitec continues to expand its ecosystem, investing in technology, artificial intelligence, and strategic partnerships to future-proof its model.​

The traditional banking sector, dominated by a few large institutions, has historically been resistant to change, partly due to heavy regulation and high barriers to entry. However, Capitec’s success demonstrates that innovation and customer-centric approaches can disrupt even the most entrenched markets, especially when banks prioritise customer needs and financial inclusion (M&G Investments, 2019).

Lastly, Capitec demonstrated that this market was not only viable—it was transformative. Its business model is built on four pillars: affordability, simplicity, accessibility and personalised service (de Lange, 2013). And now, other players are following suit. If we look at the sector’s most recent new entrants, many are targeting lower LSM consumers directly. African Bank, TymeBank, and Bank Zero are all positioning themselves to serve the entry-level market (M&G Investments, 2019). This competitive pivot affirms the long-term value of inclusivity in banking and reflects a broader industry shift towards customer-centric, tech-enabled models.

References

  1. BlueAlpha Funds, 2019. Looking Back: Capitec. [online] Available at: https://www.bluealphafunds.com/wp-content/uploads/2019/07/Looking-Back-Capitec.pdf
  2. BusinessTech, 2025. South Africa has a new biggest bank. [online] Available at: https://businesstech.co.za/news/banking/822283/south-africa-has-a-new-biggest-bank/
  3. Capitec Bank, 2025. SA’s fastest-growing brand | 2025. [online] Available at: https://www.capitecbank.co.za/blog/news/2025/sas-fastest-growing-brand/
  4. de Lange, M.C., 2013. A Strategic Analysis of Capitec Bank Limited within the South African Banking Industry. Magister in Business Administration, Nelson Mandela Metropolitan University Business School. [online] Available at: https://core.ac.uk/download/pdf/145052681.pdf
  5. Lourie, G., 2024. How Capitec Is Succeeding As A Digital Bank In South Africa. TechFinancials, 2024. [online] Available at: https://techfinancials.co.za/2024/04/23/how-capitec-is-succeeding-as-a-digital-bank-in-south-africa/
  6. Louw, C. & Nieuwenhuizen, C., 2020. Digitalisation strategies in a South African banking context: A consumer services analysis. South African Journal of Information Management, 22(1), a1153. [online] Available at: https://sajim.co.za/index.php/sajim/article/view/1153/1743
  7. M&G Investments, 2019. Banking on Change. [online] Available at: https://www.mandg.co.za/insights/articlesreleases/banking-on-change/
  8. Mthethwa, S., 2025. South African Capitec Bank posts 30% rise in annual profit. Reuters, 23 April. [online] Available at: https://www.reuters.com/world/africa/south-african-capitec-bank-posts-30-rise-annual-profit-2025-04-23/
  9. Wentzel, J.P., Diatha, K.S. and Yadavalli, V.S.S., 2016. An investigation into factors impacting financial exclusion at the bottom of the pyramid in South Africa. Development Southern Africa, 33(2), pp.203-214.
  10. World Bank, 2021. Financial inclusion in Sub-Saharan Africa: Overview. [online] Available at: https://www.worldbank.org/en/publication/globalfindex/brief/financial-inclusion-in-sub-saharan-africa-overview

Revolut’s Potential Entry into South Africa: Is this a Game-Changer for the Digital Banking Landscape

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Revolut’s Potential Entry into South Africa: Is this a Game-Changer for the Digital Banking Landscape
Travis Robson CMgr MCMI (UK), MBA, FIFM, FTIP™

London-based fintech giant Revolut is reportedly eyeing an expansion into South Africa, with the potential to impact the nation’s digital banking sector. With a global customer base exceeding 50 million and a valuation of $45 billion as of August 2024, Revolut’s entry would introduce a new level of competition to the market (Fintech News Africa, 2025).

A Diverse Product Offering

South Africa’s existing digital banks, primarily focus on personal banking, while Revolut offers a broader range of services. These include multi-currency accounts, fee-free currency exchange, stock and commodity trading, and even cryptocurrency trading (TechCentral, 2025). Additionally, Revolut provides business banking services, insurance, and lifestyle perks like travel and device insurance, as well as airport lounge access.

Global Footprint and Success

Revolut’s expansion strategy has achieved notable success across several markets. In Europe, it has become a dominant financial platform, especially in countries like Ireland, where over 2 million people – almost half the population – now use the app (This Week in Fintech, 2024). Revolut has also cemented its status as a fintech leader in Asia, expanding services in Singapore and Southeast Asia with new wealth and multi-currency offerings (The Asian Banker, 2024).​

The company’s global footprint extends to Australia, where it reported record profits in 2024, reflecting a broader trend of international profitability and operational maturity (Security Brief Australia, 2024). Beyond scale, Revolut’s agility and customer-centric model have positioned it as an alternative to traditional banks. Analysts argue that legacy institutions can learn from its lessons in design, transparency, and speed of innovation (Finance Magnates, 2024).​

In 2024, Revolut experienced significant growth, with monthly transactions rising by 59% from 590 million in 2023 to 940 million. Customer balances increased by 66%, from £18.2 billion to £30.2 billion. The company aims to reach 100 million customers across 100 countries, reflecting its ambition to become a global financial super-app (Payment Expert, 2025).

Strategic Moves and Local Presence

To establish a foothold in South Africa, Revolut has applied for a full banking license from the South African Reserve Bank (Techpoint Africa, 2025). The company has also appointed Tom Morrison as Head of Strategy & Operations in South Africa, indicating a commitment to building a local presence (Fintech Magazine Africa, 2025). While they are in the early stages of evaluating the market, their expansion plans suggest they intend to offer a full suite of financial services, including those that involve investments and trading.

Competitive Landscape

Revolut’s potential entry comes at a time when South Africa’s fintech sector is gaining global attention. The market’s attractiveness stems from its relatively high banking penetration – about 85% of adults have accounts – combined with a growing demand for innovative, cost-effective financial solutions (Technext24, 2025).​

However, Revolut will face stiff competition. TymeBank, the country’s first fully digital bank, has achieved a $1.5 billion valuation as of December 2024, bolstered by a $150 million investment from Nubank, the world’s largest standalone digital bank (Fintech News Africa, 2025). TymeBank, which targets the lower end of the market, has amassed over 10 million customers since its launch in 2019.​

Discovery Bank, South Africa’s first behavioural bank, operates as a fully digital offering and targets middle to upper income clients. It surpassed one million clients by September 2024 and offers a comprehensive suite of financial services. Notably, Discovery partnered with EasyEquities in 2022 to enable local and international share trading directly through its app, thereby competing directly with Revolut’s investment features (News24, 2022).

Regulatory and Operational Challenges

Securing a banking license from the South African Reserve Bank is a complex process, and Revolut’s lack of physical infrastructure, unlike TymeBank’s retail partnerships, could hinder its appeal in a market where cash remains prevalent (Technext24, 2025). Additionally, regulatory scrutiny around cryptocurrency and data privacy could complicate its rollout.

Potential Impact on the Market

Revolut’s prospective launch could significantly disrupt South Africa’s fintech ecosystem. Its extensive product range could pressure local digital banks to diversify beyond personal banking. TymeBank and Bank Zero, which have focused on affordability and accessibility, may need to enhance their offerings to compete with Revolut’s multi-currency and investment options.​

Moreover, a successful South African launch could serve as a springboard for Revolut’s expansion across Africa, a continent with a young, mobile-first population and a growing fintech environment. Currently, African users can access limited Revolut services without a local banking license, but a full-fledged operation in South Africa could unlock new growth avenues (Fintech News Africa, 2025).

Conclusion

Revolut’s potential entry into South Africa represents a significant development in the country’s financial sector. While challenges exist, including stagnant economic growth, regulatory hurdles and established competition, the move could offer consumers more choices and drive innovation in digital banking services. As the situation unfolds, stakeholders will be watching closely to see how Revolut navigates the complexities of the South African landscape and whether it can replicate its global success on the African continent.

References

  1. Finance Magnates. (2024). 10 Lessons Traditional Banks Can Learn from Revolut’s Success. Available at: https://www.financemagnates.com/fintech/payments/10-lessons-traditional-banks-can-learn-from-revoluts-success/
  2. Fintech Magazine Africa. (2025). Digital Banking Giant Revolut Eyes South Africa, Prepares for Market Entry. Available at: https://fintechmagazine.africa/2025/03/12/digital-banking-giant-revolut-eyes-south-africa-prepares-for-market-entry/
  3. Fintech News Africa. (2025). Revolut Eyes South Africa, Challenging Local Digital Banks. Available at: https://fintechnews.africa/44855/fintech-south-africa/revolut-south-africa-expansion/
  4. News24. (2022). Share Trading Now Available for Discovery Bank Clients Through EasyEquities. Available at: https://www.news24.com/fin24/partnercontent/share-trading-now-available-for-discovery-bank-clients-through-easyequities-20221017-3
  5. Payment Expert. (2025). Revolut’s 2024 Growth Seeks for 100M Customers in 100 Countries. Available at: https://paymentexpert.com/2025/04/24/revoluts-2024-growth-seeks-for-100-customers-in-100-countries/
  6. Security Brief Australia. (2024). Revolut Reports Record Profits in Australia, Globally for 2024. Available at: https://securitybrief.com.au/story/revolut-reports-record-profits-in-australia-globally-for-2024
  7. TechCentral. (2025). Digital Bank Revolut Is Eyeing a South African Launch. Available at: https://techcentral.co.za/digital-bank-revolut-south-african-launch/260414/
  8. Techpoint Africa. (2025). Revolut Eyes South African Market. Available at: https://techpoint.africa/news/revolut-south-africa-banking-license/
  9. Technext24. (2025). UK’s Revolut Targets South Africa’s Growing Fintech Market. Available at: https://technext24.com/2025/03/10/revolut-uk-targets-south-africa-fintech/
  10. The Asian Banker. (2024). Revolut Expands in Singapore and Southeast Asia with Wealth and Multi-Currency Services. Available at: https://www.theasianbanker.com/updates-and-articles/revolut-expands-in-singapore-and-southeast-asia-with-wealth-and-multi-currency-services
  11. This Week in Fintech. (2024). When an Entire Country Turns to Fintech: Ireland’s Revolut Phenomenon. Available at: https://www.thisweekinfintech.com/when-an-entire-country-turns-to-fintech-irelands-revolut-phenomenon-2/

SOUTH AFRICA’S US MISSION

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SOUTH AFRICA’S US MISSION
Bianca Botes, Director at Citadel Global

This week, South Africa’s high-profile diplomatic mission to the United States (US) delivered more drama than results. The delegation, led by South African President, Cyril Ramaphosa and key ministers, set out to repair relations and explore new trade opportunities, but instead found themselves in the midst of a tense political confrontation and tough negotiations.

Despite the country facing two major event risks on Wednesday: a crucial budget announcement and the headline-grabbing spectacle, the rand barely blinked.

Diplomatic drama in Washington

The Ramaphosa-Trump meeting quickly turned into a political showdown. The US president, joined by prominent business figures, confronted the South African team with controversial claims about the country’s internal situation. The South African delegation stood firm, rejecting these allegations and highlighting the complexity of the nation’s challenges. The exchange was tense, but both sides ultimately agreed to keep communication channels open and continue discussions on trade and investment.

Trade talks hit a wall

Trade was meant to be the central theme, but besides the agreement to keep communication lines open, progress was limited. South Africa’s proposals for new trade agreements and increased energy imports were met with scepticism. The US side insisted on maintaining strict conditions, including exemptions from certain local economic policies, which South Africa was unwilling to grant. South Africa’s efforts to preserve preferential access for agricultural exports also stalled, leaving future trade relations uncertain.

Starlink: a new offer on the table

In a bid to attract investment and improve digital connectivity, South Africa made a special offer to South African-born tech entrepreneur, Elon Musk. The proposal would allow his satellite internet service to operate in the country without the usual ownership requirements, instead focusing on local investment and rural access. This move was designed to break a long-standing deadlock and signal South Africa’s openness to innovative solutions, even as broader negotiations remained stuck.

Budget 3.0 and the rand’s steady hand

On the same day as the diplomatic fireworks, South Africa’s finance minister unveiled a revised budget. The plan avoided VAT and income tax hikes, opting instead for targeted spending cuts and increased fuel levies (also a tax…). Despite the significance of both the budget and the US meeting, the rand remained remarkably stable. Investors appeared reassured by the government’s commitment to fiscal discipline and largely ignored the diplomatic drama taking place in Washington DC. The buckling greenback, of course, also provided the rand with a supportive hand.

Market reaction: business as usual

The rand’s resilience was notable. While political headlines dominated the news, financial markets took the developments in stride. The currency held steady, the stock market posted gains, and bond yields remained unchanged. For investors, the week’s events were seen more as noise, than as substance, and, as such, will have little immediate impact on the country’s economic outlook.

South Africa’s US mission was a reminder of the unpredictability of global politics. The delegation faced unexpected challenges but maintained composure, pushing for practical engagement on trade and investment. The new approach to digital infrastructure showed flexibility, even as broader trade talks faltered.

TURNING TO THE MARKETS

The week’s key themes:

·       US bond yields reflect US debt concerns

·       Wall Street cautious amid ongoing fiscal policy worries

·       Supply glut weighs on oil price

·       US debt woes weigh on dollar

Bonds

The yield on the US 10-year Treasury note climbed to around 4.6%, reaching its highest level in three months after the US House of Representatives narrowly passed President Trump’s new tax bill. This legislation, which now heads to the Senate, is expected to increase the US budget deficit by nearly $3 trillion over the next decade and raise the debt ceiling by $4 trillion. These developments have heightened concerns about the US government’s ability to manage its finances, especially after Moody’s downgraded the country’s credit rating, citing persistent deficits and rising debt.

The immediate effect has been a sharp rise in US government borrowing costs, as investors demand higher yields to compensate for increased fiscal risk. This has triggered a broader selloff in global bond markets, pushing up yields in other major economies.

In the United Kingdom (UK), the 10-year Gilt yield rose to its highest level in six weeks, as government borrowing exceeded expectations and inflation remained stubbornly high. Despite some improvement in business confidence, the UK’s manufacturing sector continues to contract, and public sector borrowing is surging. In Germany, bond yields also edged higher, reflecting investors’ unease over global fiscal trends and mixed signals from economic data.

The South African 10-year bond yield also climbed, to above 10.7%, following a tense meeting between President Ramaphosa and President Trump, and after the finance minister cut the country’s growth forecast.

Equities

US stock futures remained mostly steady this morning as investors weighed the impact of President Trump’s newly passed tax-and-spending bill on the nation’s fiscal outlook. The legislation, which includes significant tax cuts and higher defence spending, is projected by the Congressional Budget Office to add nearly $4 trillion to the national debt over the next decade. This prospect has heightened concerns about long-term fiscal stability, especially after Moody’s downgraded the US credit rating, citing rising deficits and the increased cost of servicing government debt.

The immediate market reaction has been cautious with the Dow Jones closing flat, while the S&P 500 slipped slightly, and the Nasdaq posted a modest gain on Thursday. Seven of the eleven S&P 500 sectors finished lower, with utilities, health, and energy stocks leading the declines, while technology and consumer-related sectors outperformed.

Outside the US, the FTSE 100 in London fell 0.5% amid disappointing corporate earnings and a larger-than-expected UK government deficit. In Germany, the DAX dropped 0.5% as investors digested mixed economic data and the global implications of US fiscal policy. In contrast, South Africa’s main stock index has surged over 10% since the start of the year, bucking the global trend.

Commodities

Brent crude oil prices dropped toward $64/barrel, heading for their first weekly decline in three weeks. This fall is mainly due to expectations that the expanded Organisation of the Petroleum Exporting Countries, OPEC+, which is a coalition of major oil-producing nations, might approve another increase in oil production at their upcoming meeting. The group is considering raising output by roughly 411,000 barrels per day in July, which would be the third consecutive monthly hike. While no final decision has been made, even the possibility of more supply has unsettled the market. These production increases come at a time when US crude oil inventories unexpectedly rose, signalling that supply may already be outpacing demand. As a result, demand for US oil storage has surged to levels not seen since the COVID-19 pandemic, with traders preparing for a potential supply glut. The market is also closely watching the Baker Hughes rig count – a key indicator of future US oil and gas production – to gauge whether American output will add further to the oversupply.

Geopolitical risks are also influencing energy markets. Reports suggest Israel is preparing for possible strikes on Iranian nuclear facilities if US-Iran nuclear talks fail, raising fears of regional supply disruptions. However, these concerns have, so far, been outweighed by the prospect of increased oil supply and rising stockpiles.

Meanwhile, gold prices hovered near $3,300 per ounce, recovering from earlier losses and are set for a weekly gain. Investors are turning to gold, yet again, as a safe haven asset amid worries about US fiscal policy, especially after a major tax-and-spending bill was passed and Moody’s downgraded the US credit rating. Gold is an attractive asset for investors because it is a good diversifier of portfolios as it protects against inflation and its value is resilient during volatile and uncertain economic times. A weaker US dollar has further supported gold, making it more attractive to buyers worldwide. Ongoing geopolitical tensions have added to gold’s appeal as a refuge in uncertain times.

Currencies

The US Dollar Index dropped to around 99.6, marking a weekly loss of over 1%, as global investors reacted to growing worries about the US fiscal outlook. The main driver behind this decline was President Trump’s new budget bill. These anxieties were further heightened after Moody’s downgraded the US credit rating from Aaa to Aa1, citing the country’s ballooning deficits and the rising cost of servicing its $36 trillion debt. Such a downgrade signals to investors that lending to the US is riskier, which can increase borrowing costs for the government and the broader economy. The dollar also faced pressure from a lack of progress in US trade negotiations, prompting some investors to shift funds away from US assets. However, there has been a slight easing of tension as US and Chinese officials agreed to keep diplomatic channels open.

In Europe, the euro strengthened to about $1.13/€, buoyed by better-than-expected German business sentiment, even as eurozone private sector activity contracted at its fastest pace in six months. The British pound rose above $1.336/£, supported by a landmark UK-European Union agreement on post-Brexit relations and higher-than-expected UK inflation, which could affect future Bank of England policy decisions.

Meanwhile, the South African rand held firm near a five-month high against the dollar, benefitting from a depressed greenback as markets reacted positively to the prospect of new trade talks with the US and ongoing speculation about changes to South Africa’s inflation-targeting regime, despite a weaker economic growth outlook and slightly higher inflation. The rand has also strengthened against the euro and the pound.

Levelling the Playing Field: Exchange Control Reforms and ETF Growth in South Africa

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Levelling the Playing Field: Exchange Control Reforms and ETF Growth in South Africa
Recent reforms to the Johannesburg Stock Exchange (JSE) listing requirements have paved the way for Actively Managed ETFs (AMETFs) in South Africa, creating a level playing field with traditional passive ETFs. Since 2005, ETFs have benefited from favourable exchange control treatment, allowing 100% offshore investment, unlike traditional Collective Investment Schemes limited to 45%. The new rules are expected to accelerate ETF growth, boost liquidity, promote foreign diversification, and increase onshore fee income, aligning South Africa’s ETF market with global trends.

By: Ben Meyer, Managing Director at Prescient Capital Markets

The evolution of financial markets is often shaped by regulatory reforms, which can either accelerate or hinder growth. A prime example is the Exchange-Traded Fund (ETF) market, where regulatory adjustments have played a crucial role in determining the pace of expansion. While the U.S. ETF market has flourished due to favourable tax treatment, South Africa’s ETF sector has experienced a more gradual trajectory, influenced by exchange control policies. However, recent amendments to the Johannesburg Stock Exchange (JSE) listing requirements could mark a turning point, unlocking new growth opportunities for investors and asset managers alike.

South Africa’s regulatory framework for ETFs

Since 2005, South Africa has had its own regulatory trigger that could have impacted ETF growth. ETFs structured as Collective Investment Schemes (CIS) have been subject to different exchange control (Excon) treatment compared to traditional CIS funds. Specifically, ETF managers have been permitted to invest 100% of their assets offshore, whereas traditional CIS funds were limited to allocating only 45% of overall retail assets to foreign investments.

While ETFs that track foreign assets are still considered foreign from a prudential limits perspective, there are no restrictions on how much retail investors can allocate to these ETFs. This fundamental difference in treatment has shaped the landscape of South African capital markets.

Rationale for favourable Excon treatment of ETFs

The South African National Treasury, which sets exchange control policies, introduced this Excon relaxation in 2005 with the goal of expanding market capitalisation, enhancing liquidity on the Johannesburg Stock Exchange (JSE), and promoting foreign diversification through domestic investment channels. The South African Reserve Bank (SARB) also supported this initiative, as the JSE’s daily reporting of ETF flows aids in policy formation from a Balance of Payments perspective. In contrast, traditional CIS funds report foreign flows only on a quarterly basis.

This preferential treatment was intended to drive growth in the South African ETF market. However, the expected expansion has been slower than anticipated. One key reason is the dominance of active management in South Africa and historical JSE listing requirements restricting ETFs to passive index-tracking strategies.  Traditional asset managers have been reluctant to embrace index tracking ETFs, thus limiting their uptake in the institutional market.

New JSE listing rules for Actively Managed ETFs

In a landmark regulatory change, the JSE amended its listing requirements at the end of 2022 to allow for Actively Managed ETFs (AMETFs). This development has sparked significant interest from active fund managers wishing to list AMETFs, including for portfolios that reference foreign assets.

For the first time since 2005, all ETFs—whether actively managed or index-tracking—now operate on a level playing field. Given the natural investor demand for foreign diversification, this regulatory shift is expected to fuel ETF growth, leading to increased listings on the JSE and improved liquidity. Moreover, this development will generate more onshore fee income from foreign investments, further strengthening the South African financial ecosystem.

Expected impact of AMETF listings

The introduction of AMETFs and their favourable Excon treatment is poised to be a game-changer for South Africa’s ETF market. As more ETFs become available, their utility will become better understood, encouraging broader adoption by investors.

These changes align with the original objectives set by the National Treasury—enhancing capital markets, promoting foreign diversification through local investment vehicles, and fostering higher savings rates. Crucially, this will all occur without negatively affecting South Africa’s Balance of Payments, as these investments are denominated in rand and will revert to the local economy when investors liquidate their holdings.

With regulatory barriers lifted, South Africa’s ETF market is now better positioned to align with global trends, paving the way for sustainable expansion and increased investor participation.

Mistakes Made by Investors in the Stock Market

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Mistakes Made by Investors in the Stock Market
By Clarke Chesango, MIFM

Many investors worldwide have lost a lot of money due to a variety of factors.
Stock exchanges are platforms where companies raise money from investors to expand and increase their productive capacities for strategic reasons. Investors include retail, institutional, and corporate buyers, as well as foreign investors.
When a company’s internal financial resources become inadequate to fund its growth prospects, it may issue additional shares or launch an initial public offering (IPO) to solicit funds from the public.
To do so, the company must first fulfill the requirements of the Companies Act and then apply for admission as a member of the Johannesburg Stock Exchange (JSE) or another relevant exchange to list its shares. All legal processes and listing requirements must be complied with.
Investors have incurred losses on the stock exchange due to the following factors, among others:

Lack of Financial Literacy
Financial knowledge is crucial for making informed and educated decisions about allocating funds efficiently according to one’s risk appetite and objectives. Knowledge is an asset, as it gives one independence and the ability to make informed choices among alternative stocks. Some investors have lost a lot of money due to a lack of necessary knowledge and skills, basing their decisions on rumors or news without adequate due diligence. Some investors cannot distinguish between illegal and legal trading and investment platforms. Due to this lack of knowledge, they end up committing their funds to bogus online platforms promising high, abnormal returns. In some cases, they may choose the correct legal brokers but opt for the wrong product or instrument, which results in losses or inadequate returns.
Other investors may buy overvalued shares without a sufficient margin of safety, increasing the likelihood of losses in the event of a crisis the company may face in the future.
A current example is the two-pot system, in which eligible pensioners are withdrawing part of their retirement savings. Retirement savings are meant to support individuals after retirement, so withdrawing before retirement can lead to compounding effects, losses, and other costs. The future of pensioners who withdraw now for consumption purposes is bleak, especially those who are withdrawing without carefully analyzing the future impact.

Duration of Investment
Investing in the stock markets is volatile, as share prices fluctuate. In the short term, the ability to weather volatility is limited and costly, as the probability of incurring losses is high. Long-term investing, however, allows time to ride out volatility, as the share price is more likely to recover and move positively toward its intrinsic value and fundamentals. This type of investing tends to reward the patient investor, especially if their initial purchase was made with a large margin of safety. Compounding effects help increase wealth over time for long-term investors.

Exiting at the Wrong Price
Some investors buy at high prices and sell at low prices, exiting positions at a loss. This often happens during crisis situations like COVID-19 and recessions. As long as the company’s fundamentals remain intact and sustainable, an informed investor should continue buying as share prices decline. This strategy is known as dollar-cost averaging or rand-cost averaging, depending on the currency.

Buying the Wrong Companies
A knowledgeable investor should buy shares from companies with strong economic moats and the durability to withstand competition. The moat can be in the form of a company’s ability to produce products at lower prices while maintaining demand and market share. The moat can also result from specialized knowledge, skills, or technology that competitors cannot easily replicate, which strengthens the company’s brand and ensures its durability. Some technology companies, however, face the risk of obsolescence, as new innovations emerge every year. For example, Apple Inc. releases new cell phones annually that should outperform their competitors’ models and be accepted by the market. However, if a competitor with better and superior technology emerges, Apple could be outpaced unless it quickly adapts or is acquired by a competitor seeking synergies.
Investors should conduct thorough analyses to understand the company’s core operations, revenue drivers, and sustainability. They should evaluate whether the company can survive future competition and technological advancements before committing their funds.

Lack of Diversification in Portfolios
Diversification helps minimize losses in the event of company-specific and economy-wide challenges.
Diversification should occur at the personal, company, and industry levels to preserve capital and reduce risk. Putting all your investments in one asset or company can result in significant losses if that particular company or industry faces an economic downturn.
Personal diversification refers to varying the risk profile of investments based on individual preferences.
Company diversification involves investing in shares from different companies across various industries.
Industry diversification means investing in shares from different sectors with varying life cycles.
Diversification reduces overall risk and increases the potential for returns.
Moreover, the diversification across companies and industries should be negatively correlated, so that economic fluctuations in one area don’t significantly impact the performance of the entire portfolio.
An undiversified portfolio is exposed to significant and potentially catastrophic losses.

Failure to Value Company Shares
Before buying shares in a company, an investor should calculate the intrinsic value of the shares based on their assumptions. Comparing the intrinsic value to the current share price will reveal whether the shares are undervalued or overvalued. If the current share price is below the intrinsic value, the shares are undervalued; if the price is above the intrinsic value, the shares are overvalued.
The decision is to buy undervalued shares with a large margin of safety, protecting the investor from downside risk in future crises, and to sell overvalued shares. This decision should be made after thorough analysis of various valuation and qualitative metrics. However, some investors buy shares without first valuing the company or its stock.

Failure to Analyze Annual Financial Statements
Financial statements include the income statement, balance sheet, and cash flow statement.
The income statement shows the company’s profits or losses.
The balance sheet presents the company’s assets, liabilities, and equity position at a specific point in time.
The cash flow statement shows the company’s cash-generating ability and its sustainability, including the uses and applications of that cash.
The ability to analyze and interpret financial statements provides investors with crucial information for making decisions based on concrete facts.
Failure to analyze financial statements has led some investors to invest based on hearsay, which often results in losses.
Ideally, a business should generate consistent revenue and profit, making it easier to predict future financial statements.
Inconsistency in these financial results raises concerns about the sustainability of the business model.
Investors should be cautious of exceptional items that distort the core performance of the company. Exceptional items should be excluded to gain a clearer understanding of the company’s operations.

Lack of Free Cash Flow Analysis
Free cash flow is the cash left over after capital expenditure. A company can use this cash to reinvest in its business, pay dividends, repurchase shares, or fund new projects that generate returns for shareholders. Investors should examine the trend of free cash flow and how it is applied. Positive free cash flow provides flexibility for a company to invest in opportunities.

Shareholder Structure
Some investors fail to consider the major shareholder structure of the companies they invest in. This metric helps investors understand the composition of the company’s investor base, whether it’s made up of institutional investors, corporations, or retail investors. The type of investor base and their shareholdings can indicate sustainable demand for the company’s shares.

Debt to Equity
Some investors fail to understand the debt-to-equity ratio and other important metrics from the balance sheet, which can lead to poor investment decisions.
Companies funded primarily by debt are more likely to face liquidity and solvency issues during economic downturns or internal crises. For instance, during COVID-19, many companies faced difficulties in servicing their debts, leading to breaches of financial covenants unless lenders relaxed loan conditions.

Self-Sustaining Growth
A company that funds itself through internally generated resources is generally better equipped to withstand crises. It will have a stronger balance sheet and greater resilience to external shocks.

Recommendations

  1. Investors should consider investing in their financial education to create wealth for themselves and future generations. This will help drive economic well-being.
  2. Regulatory bodies should ensure that investors have access to free educational resources on investing.
  3. Governments should consider introducing share trading and investment education at primary school levels.
  4. Funding should be allocated to organizations that equip the public with financial knowledge and skills.
  5. Companies should maintain large pools of professional liability insurance to compensate investors in case of financial misconduct. Regulatory interventions should be prompt and efficient to prevent prolonged investor losses.
  6. Investing in the stock market can be a viable means of self-employment, generating tax revenue for governments. Governments should encourage youth participation in the investment space to provide constructive alternatives to illegal activities.
  7. Continuous learning and development are essential. Investors should invest in their skills to stay informed and adapt to changing market conditions.
  8. Seek advice from registered financial service providers. Only authorized entities operating within the boundaries of the Financial Advisory and Intermediary Services Act (FAIS Act) should be consulted.

Commentary
Companies with debt aren’t necessarily a poor investment choice. Growth companies often rely on debt to finance operations, and some may have negative free cash flow. As long as the debt is manageable and within the company’s capacity, these companies can still present viable investment opportunities after thorough analysis.

New Innovations
New technologies, such as automated trading platforms, are being used to buy and structure portfolios. However, these technologies should be registered with regulatory authorities and reviewed for compliance with investor needs.

Cultural Shift
In some cultures, people fear legal investments and instead turn to illegal lending markets. There is a need to educate community leaders about the benefits of investing in the stock market, so they can share this knowledge with others. Local government agencies can play an important role in encouraging communities to explore legal investment opportunities.
With the right skills and knowledge, some investors have made significant fortunes in the stock market, such as Warren Buffett.

Sources: Value Investing in Growth Companies by Rusmin Ang and Victor Chng

JSE’s reforms reshape South African capital markets for future growth

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JSE’s reforms reshape South African capital markets for future growth
Written by André de Lange

Recent progress made at the Johannesburg Stock Exchange (JSE) has signalled a renewed confidence in South Africa’s capital markets, highlighting the institution’s critical role in growing the economy. While market conditions have presented challenges, André de Lange, Director Corporate & Commercial at CDH, believes the JSE has demonstrated resilience through more accessible listings – an attractive prospect for companies looking to unlock value. 

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IOSCO publishes new Consultation Report on Artificial Intelligence in Capital Markets: Use Cases, Risks, and Challenges

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IOSCO publishes new Consultation Report on Artificial Intelligence in Capital Markets: Use Cases, Risks, and Challenges

Identifies five key findings following engagement with IOSCO members and stakeholders and invites further feedback

IOSCO is pleased to announce the publication of a new substantive report that addresses the rise of Artificial Intelligence (AI) use in capital markets and its impact on investors globally.

While the use of AI technologies in capital markets is not a new phenomenon, AI technologies have recently experienced significant innovations, investment, and interest, for which generative AI is a key gamechanger. As market participants explore and test new possibilities, and as AI technologies continue to advance, the range of AI uses in capital markets will continue to expand.

Artificial Intelligence in Capital Markets: Use Cases, Risks, and Challenges was developed by IOSCO’s Fintech Task Force (FTF) to create a shared understanding among IOSCO members of the issues, risks, and challenges that emerging AI technologies used in financial products and services may pose to investor protection, market integrity, and financial stability, and to assist IOSCO members as they consider regulatory responses.

The Report’s findings are based on a combination of direct feedback from IOSCO’s members and industry participants. IOSCO now invites feedback from the public, including financial market participants, AI developers, academics, researchers, public policy experts, and other interested parties to inform its approach to developing tools which might help regulators combat the risks of AI in the future.

The Report identifies five key findings:

  • Firms are increasingly using AI to support decision-making processes in applications and functions such as robo-advising, algorithmic trading, investment research, and sentiment analysis. AI is also being used to enhance surveillance and compliance functions, particularly in anti-money laundering (AML) and counter-terrorist financing (CFT) measures.
  • Firms are using recent advancements in AI to support internal operations and processes through task automation; to enhance communications; and to improve risk management functions.
  • Risks most commonly cited with respect to the use of AI systems in the financial sector include malicious uses of AI; AI model and data considerations; concentration, outsourcing, and third-party dependency; and interactions between humans and AI systems.
  • Industry practices are evolving, with some financial institutions incorporating AI into existing risk management and governance structures, and others establishing more bespoke frameworks.
  • Regulatory responses to the use of AI in the financial sector are also evolving, with some regulators applying existing regulatory frameworks to AI activities, and others developing new regulatory frameworks to address the unique challenges posed by AI.

Jean-Paul Servais, Chair of IOSCO and Chair of the Belgian Financial Services & Markets Authority, said: “IOSCO’s Report underscores the importance of understanding the transformative role of AI in capital markets and the accompanying risks. As we move forward, it is crucial for regulatory bodies to continue to work collaboratively to ensure that innovation in financial technologies does not compromise investor protection, market integrity, and financial stability.”

Tuang Lee Lim, Chair of IOSCO’s Fintech Task Force and Assistant Managing Director of the Monetary Authority of Singapore, added: “The next phase for IOSCO will be to consider, as appropriate, the development of additional tools, recommendations, or considerations to assist members in addressing the issues, risks, and challenges posed by the use of AI technologies in financial products and services.”

IOSCO will continue to play a coordinating role regarding AI developments in the financial sector and to engage with other relevant international organizations, such as the Financial Stability Board (FSB).

IOSCO invites all comments on this Report to be submitted to AIWGConsultation@iosco.org on or before April 11, 2025

AI-Driven Trading: Transforming Decision-Making in Financial Markets

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AI-Driven Trading: Transforming Decision-Making in Financial Markets
Travis Robson CMgr MCMI (UK), MBA, FIFM, FTIP™

The financial markets have always been at the forefront of technological innovation, and the advent of artificial intelligence (AI) is no exception. AI-driven trading, which leverages machine learning algorithms, natural language processing, and big data analytics, is revolutionizing the way financial decisions are made. This transformation is not only enhancing the efficiency and accuracy of trading but also reshaping the competitive landscape of the financial industry (Prabhakaran, 2024). In this article, we explore how AI-driven trading is transforming decision-making in financial markets, its benefits, challenges, and the future implications for South Africa’s financial sector.

The Rise of AI in Financial Markets AI-driven trading refers to the use of sophisticated algorithms that analyse vast amounts of data to identify trading opportunities, predict market movements, and execute trades at optimal times. Unlike traditional trading strategies that rely on human intuition and historical data, AI systems can process real-time data from multiple sources, including news articles, social media, and economic indicators. This capability allows AI-driven systems to identify patterns and correlations that are often invisible to human traders. The global adoption of AI in trading has been rapid. According to a report by Mordor Intelligence (2024), the algorithmic trading market is expected to grow at a compound annual growth rate (CAGR) of 10.7% from 2024 to 2033 and estimated to reach US$ 50,4 billion by 2033. In South Africa, the Johannesburg Stock Exchange (JSE) has also seen a surge in algorithmic trading, with AI-driven systems accounting for a significant portion of daily trading volumes.

Benefits of AI-Driven Trading

  1. Enhanced Decision-Making: AI systems can analyse vast datasets in milliseconds, enabling traders to make informed decisions based on real-time information. This speed and accuracy reduce the risk of human error and improve the overall quality of trading decisions (Cohen, 2022).
  2. Improved Market Efficiency: By automating the trading process, AI-driven systems can execute trades at optimal prices, reducing market inefficiencies and improving liquidity. This benefits not only institutional investors but also retail traders who rely on fair and transparent markets (Cohen, 2022).
  3. Risk Management: AI algorithms can assess risk more effectively by analysing historical data and identifying potential market downturns or volatility. This allows traders to hedge their positions and minimize losses during periods of market uncertainty (Patil, 2023).
  4. Cost Reduction: Automation reduces the need for human intervention, lowering operational costs for financial institutions. Additionally, AI-driven systems can identify cost-saving opportunities, such as optimizing trade execution to reduce transaction costs.
  5. Adaptability: AI systems can adapt to changing market conditions by continuously learning from new data. This adaptability is particularly valuable in volatile markets, where traditional strategies may become obsolete.

Challenges and Risks

Despite its numerous benefits, AI-driven trading is not without challenges. One of the primary concerns is the potential for algorithmic bias. If the data used to train AI systems is biased or incomplete, the algorithms may produce flawed predictions, leading to suboptimal trading decisions (Muhammad & Shah, 2024). Additionally, the complexity of AI systems makes it difficult to understand how they arrive at specific decisions, raising concerns about transparency and accountability. Another significant risk is the potential for market manipulation. High-frequency trading (HFT) algorithms, which are a subset of AI-driven trading, can exacerbate market volatility by executing large volumes of trades in milliseconds. This can lead to flash crashes, where prices plummet or spike within seconds, causing significant disruptions to the market. Regulatory challenges also pose a hurdle to the widespread adoption of AI-driven trading. In South Africa, the Financial Sector Conduct Authority (FSCA) is still grappling with how to regulate AI-driven systems effectively (Makore, 2024). Furthermore according to Makore (2024), “neither POPI nor the preamble to the FSRA explicitly refers to and defines AI technologies, a regulatory loophole that renders the current regulatory framework largely inoperative”. Lastly, striking a balance between fostering innovation and ensuring market stability remains a key challenge for regulators (Kgoale & Odeku, 2023).

The South African Context

South Africa’s financial markets are uniquely positioned to benefit from AI-driven trading. However, the adoption of AI-driven systems in South Africa is still in its early stages compared to developed markets like the United States and Europe (Makore, 2023; World Economic Forum, 2022). One of the key drivers of AI adoption in South Africa is the increasing availability of data. With the proliferation of mobile technology and internet access, financial institutions have access to a wealth of data that can be used to train AI algorithms (Pillai, 2023). Additionally, the growing interest in fintech innovation has created a fertile ground for the development of AI-driven trading solutions. Challenges exist, such as limited access to skilled AI professionals and concerns about data privacy and security remain significant barriers. South Africa needs to invest in education and training programs to develop a pipeline of AI talent. Additionally, policymakers must work closely with industry stakeholders to create a regulatory framework that supports innovation while safeguarding market integrity (Makore, 2024; Kgoale & Odeku, 2023).

The Future of AI-Driven Trading

The future of AI-driven trading in South Africa and globally is promising. As AI technology continues to evolve, we can expect even more sophisticated algorithms that can process unstructured data, such as audio and video, to make trading decisions. The integration of AI with other emerging technologies, such as blockchain and the Internet of Things (IoT), could further enhance the efficiency and transparency of financial markets. However, the widespread adoption of AI-driven trading also raises ethical questions about data privacy and algorithmic bias (Muhammad & Shah, 2024). For instance, how do we ensure that AI systems are used responsibly and do not exacerbate inequality in financial markets? Addressing these questions will require collaboration between regulators, industry players, and academia.

Conclusion

AI-driven trading is transforming decision-making in financial markets by enhancing efficiency, improving risk management, and reducing costs. For South Africa, embracing AI-driven trading presents an opportunity to strengthen its position as a leading financial hub in Africa. Realizing this potential will require investment in technology, talent, and regulatory frameworks that support innovation while ensuring market stability. As the financial industry continues to evolve, one thing is clear: AI-driven trading is not just a trend but a fundamental shift in how financial markets operate. By embracing this transformation, South Africa can unlock new opportunities and drive sustainable growth in its financial sector.

References

  1. Cohen, G., 2022. Algorithmic Trading and Financial Forecasting Using Advanced Artificial Intelligence Methodologies. Mathematics. https://doi.org/10.3390/math10183302.
  2. Johannesburg Stock Exchange. (2023). Annual Report 2022. Retrieved from [https://www.jse.co.za](https://www.jse.co.za)
  3. Kgoale, T., & Odeku, K., 2023. An analysis of legal accountability for artificial intelligence systems in the South African financial sector. De Jure. https://doi.org/10.17159/2225-7160/2023/v56a14.
  4. Makore, M., 2024. Regulating Artificial Intelligence to Advance Financial Inclusion in South Africa PER / PELJ 2024(27) – DOI http://dx.doi.org/10.17159/1727- 3781/2024/v27i0a17488
  5. Mordor Intelligence. (2024). Al in Trading Market. Retrieved from [https://market.us/report/ai-in-trading-market/]
  6. Muhammad, T., Yaseen, A., & Shah, K., 2024. Empowering Financial Services: The Transformative Impact of AI on FinTech Innovation. American Journal of Computing and Engineering. https://doi.org/10.47672/ajce.2423.
  7. Patil, R., 2023. AI-Infused Algorithmic Trading: Genetic Algorithms and Machine Learning in High-Frequency Trading. International Journal For Multidisciplinary Research. https://doi.org/10.36948/ijfmr.2023.v05i05.5752.
  8. Pillai, V., 2023. Integrating AI-Driven Techniques in Big Data Analytics: Enhancing Decision-Making in Financial Markets. International Journal of Engineering and Computer Science. https://doi.org/10.18535/ijecs/v12i07.4745.
  9. Prabhakaran, P., 2024. Revolutionizing Stock Trading: The Impact of AI on Decision-Making and Efficiency. International Journal for Research in Applied Science and Engineering Technology. https://doi.org/10.22214/ijraset.2024.64018.
  10. World Economic Forum. (2022). The Future of AI in Financial Services. Retrieved from [https://www.weforum.org](https://www.weforum.org)
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