The spate of JSE delistings is traceable to low economic growth in South Africa

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Daniel Makina, University of South Africa

The 2023 annual report of the JSE indicates that the market capitalization of the bourse has fallen from R21.34 trillion in 2022 to R19 trillion at the end of 2023. That is an over R2 trillion decrease in a single year. Pundits have attributed this decline to several factors, namely, JSE delistings, foreign capital flight, political uncertainty, greylisting, geo-economic fragmentation, weak economy, energy problems, amongst others. Indeed, the number of listings on the JSE has gone down in the last two decades from 616 in 2000 to 284 at the end of 2023. According to the South African Reserve Bank (SARB) Quarterly Bulletin for Q4 of 2023, foreign investors sold R21.6 billion in equities in the fourth quarter.  The effect of weak economic growth is a no brainer because the South African has been on a well-known pedestrian growth path since 2008.

Foreign investors sold R62.6 billion worth of South African equities and bonds during the first five months of 2023, compared with net sales of R476 million in the comparable period a year earlier, data from the Reserve Bank shows. This is also clear in the performance of the JSE against its competitors. Since the beginning of the year, the FTSE/JSE all share index has risen 5.8 per cent in rand terms. In dollar terms, it was up by just 0.5 per cent. Compare this with the MSCI emerging market index’s 7.5 per cent gain in dollar terms. It is even worse when compared with the performance of the US stock markets, with the S&P 500 up 18 percent in dollar terms and the Nasdaq gaining 44.6 percent.

South Africa’s low levels of economic growth have remained a seemingly intractable problem of the JSE performance. More so, low growth is further exacerbating social problems like crime and corruption, thus creating a negative feedback loop that in turn undermines the country’s ability to make meaningful progress. But what does economic theory and empirical evidence tell us about the link between the stock market and economic growth?

Schumpeterian economics

The importance of the financial sector in promoting economic growth was first articulated by an Austrian economist, Joseph Schumpeter in the early 20th century in his seminal book – The Theory of Economic Development. He postulated that financial institutions such as banks, venture capital firms, and stock markets provide the necessary funding and resources for entrepreneurs and innovators to pursue their ideas. Central to his thesis is the concept of “creative destruction” to describe how innovation and technological change drive economic progress by replacing old industries and technologies with new ones, fostering economic growth in the process. A well-developed financial system has been observed to encourage entrepreneurship, risk-taking and investment in new technologies. In the literature, the link between financial development and economic growth has been observed to have dual causality. In the first instance, financial development does spur economic growth, that is, a finance supply-leading relationship. On the other hand, economic growth can spur financial development. This is a finance demand-leading relationship arising from economic growth.

In theory, a well-functioning stock market promotes economic growth through similar channels as the banking sector, that is, through raising the saving rate, the quantity and quality of investments[1]. It has been further observed that equity finance does not experience adverse selection and moral hazard problems to the same extent as debt finance does in the presence of asymmetric information. Therefore, the existence of equity markets in the economy enhances the allocative efficiency of capital because providers of debt finance would allocate credit efficiently by being afforded knowledge of the riskiness of borrowers[2]. Some scholars have emphasized this role of equity markets as follows: “The existence of public stock prices focuses the attention of managements and investors alike on value and value creation.”[3]

Overview of the history of the JSE

Following the discovery of gold in the Witwatersrand in South Africa in the 1880s, there was increased economic activities in the country. This prompted a South African businessman, Benjamin Woollan, to found the JSE in November 1887 with a goal of providing a platform for gold mining companies to raise capital.  Over the years other minerals were discovered and more companies were served by the JSE. The growth of the South African mining industry then was reflected in the economic boom of the 1890s that the JSE experienced. In 1947 the first legislation covering financial markets was enacted. It paved the way for the JSE to join the World Federation of Exchanges in 1963. In the early 1990s the bourse upgraded to an electronic trading system. In 2001 it acquired the South African Futures Exchange (SAFEX). This was followed by the launch in 2003 of an alternative exchange, AltX, for small and mid-sized companies as well as the launch of Yield X for interest rate and currency instruments. In 2005 it demutualised and listed on its own exchange. Then in 2009 it acquired the Bond Exchange of South Africa (BESA).

Today, the JSE is seen as the oldest and largest exchange in Africa by market capitalization, offering five financial markets, namely, Equities and Bonds as well as Financial, Commodity and Interest Rate Derivatives. In the world, it is ranked the 19th largest stock exchange by market capitalization.

The rise and fall of the JSE listings

As Exhibit 1 below shows JSE new listings and delistings as well as market capitalization have had a chequered trend in the past two decades.

Having shaken off the dot.com bubble in the early 2000s, new listings picked up significantly from 2002 to 2007. Although there were delistings in this period, they were largely outpaced by new listings. The onset of the Global Financial Crisis in 2008 adversely affected new listings so that total delistings outpaced them in the period 2008-2010.  From 2010 to 2015 new listings picked up to match delistings. However, in the period 2016 to 2023 new listings were substantially outpaced by delistings.

The JSE market capitalization more or less followed the pattern of listings. From 2002 to 2007 it rose in tandem with the higher GDP growth which averaged 4.6 per cent annually. It dipped in 2008 when the Global Financial Crisis hit. However, from 2009 to 2015 it rose and plateaued thereafter. During this period GDP growth averaged 1,7 per cent annually. From 2016 to 2023 GDP growth averaged 0.6 per cent annually, and JSE market capitalization stagnated and fell drastically from R21.34 trillion in 2022 to R19 trillion at the end of 2023.  There were minimal new listings and more delistings in this period. Evident from the trend is the link between three variables, namely, net JSE listings, market capitalization and economic growth.

Global trends of equity markets

The decline of listed companies is not only peculiar to South Africa. It has also been reported in the US and Europe. For instance, according to the index provider, Wilshire, in the US listed companies have declined from more than 7,000 to less than 4,000. Furthermore, JP Morgan has recently reported that the global equity supply has mostly turned negative since 1999. Exhibit 2 below is illustrative of the global trend.

Exhibit 2

The shrinking of the global supply of listed equity is being attributed to economic uncertainty and geo-economic fragmentation as well as large-scale share buybacks. Small companies are preferring private markets (private equity or venture capital) as a source of finance to raising finance via stock exchanges. The stringent financial and regulatory requirements for going public are also contributing factors. As a result, there is a growing market concentration in big exchanges, that is, the threshold to be considered a large-cap stock has substantially increased for, say, the S & P 500 and the Russell 2000 exchanges. It is also a phenomenon observed on the JSE.

Rekindling the vibe of the JSE

Although Keynes described the unpredictable and irrational behaviour of investors in financial markets as “animal spirits”, the performance of a stock market is ultimately driven by economic growth. The performance of the JSE since its inception has been driven by economic growth. Therefore, when conducive conditions for growth are created so that economic growth picks up to levels above the population growth rate, economic activities will result in more listings as companies seek public equity finance. In theory, resurgent economic growth, and a rising JSE, will spur more companies to raise finance by selling new shares.

Historically, the fortunes of the JSE have been driven by resources, but going forward it will be driven by services and technology sectors. The business model of the largest company by market capitalization on the JSE, Naspers, which has interests in Tencent (China) and Prosus (Netherlands) provides us with an indication of where future growth will come from. The top 10 largest companies on the JSE have now only three resource companies (Goldfields, Kumba Iron and Anglo American) where the other seven are financial institutions and technology companies (Naspers, FirstRand, Capitec, MTN, Standard Bank, Bidvest, and Vodacom). In other words, resource counters are on the wane and technology companies on the rise. The analysis of the performance of JSE sectors in 2023 is testament to the trend. The JSE performance for the year ended 2023 indicated that healthcare counters led, followed by industrial counters and then financial counters, all which are technology-driven in their operations. “Creative destruction” as advocated by Schumpeter is on the march. The first quarter results of the world largest sovereign wealth fund of Norway has reported a profit of US$110 billion (R2 trillion), largely driven by technology stocks. This makes South Africa, with its commodity-heavy stock exchange, an even less attractive investment destination. This situation will be sticky and hard to change unless economic growth picks up with the services and technology sectors as key growth sectors. This is what will make the JSE find its mojo again.


[1] Singh, A., 1992. The Stock Market and Economic Development: Should Developing Countries Encourage Stock Markets? UNCTAD Discussion Paper No. 49.

[2] Cho, Y.J., 1986. Inefficiencies from financial liberalization in the absence of well-functioning equity markets. Journal of Money, Credit and Banking, 19 (2): 191-200.

[3] Beim, D.O., Calomiris, C.W. 2001. Emerging Financial Markets. McGraw Hill Irwin, New York, page 63.