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JSE takes steps to find a home for its laggards  February 24, 2002

Francois Ebersohn

Johannesburg - Big sectors other than resources are stagnating on the JSE
Securities Exchange, Africa's largest bourse.


The fact that industrials and small cap stocks count among the casualties is especially worrying because it casts a pall over the future of the economy,but Russell Loubser, the chief executive of the JSE, said the bourse was not
about to become dominated by trade in one sector that housed dual-listed companies.

The JSE had done its homework in establishing an alternative for venture capital companies, he said at the weekend.

This could lead to the establishment of a separate board similar to the Alternative Investment Market (AIM) on the London Stock Exchange (LSE),where about 700 companies have been listed since 1995.


David Shapiro, the managing director of SG Securities, said this week that just 5 percent of the market belonged to private clients - the only players who might be interested in investing in smaller stocks.

But Loubser noted that up to the same date, after 108 years of existence,the JSE was by law restricted to the role of an agency. It was only then that principal trading started, leading to so-called market making in derivatives in the past four years.

This market is dominated by the private investor and has become the fastest-growing sector on the JSE, expanding from four warrants to more than 600.

Critics like Shapiro say the migration of local companies to London poses a threat to the very existence of the JSE. They believe the bourse's only protection is in foreign exchange regulations.

Loubser, however, countered that with the JSE's platform-sharing arrangement with the LSE. The very removal of forex regulations would give access to local stocks on a much larger scale.

According to Shapiro, the industrial sector, the mainstay of any economy,lost almost half of its value over the five years to the end of last year. His research results, presented this week to African Life, showed the market
capitalisation for industrial stocks (adjusted for currency fluctuation)dropped from R418 billion to R234 billion.

Until now, some of these aspects were dwarfed by a 46 percent gain in the total market capitalisation of the JSE, from R1.13 trillion in 1996 to R1.65 trillion at the end of last year. This, Shapiro cautioned, was largely due to the rand's depreciation.

The lack of interest in small caps can be addressed in ways other than listing.

Steven Weddle, a director at Eccles Associates, a New York-based financial consulting firm and investment banking boutique, noted that securitisation had an excellent future as a way of raising capital for emerging private business.

The SA Venture Capital and Private Equity Association also represents a source of more than R35 billion for capital seekers.