Cricket apart, South Africa has not excelled in many fields in recent years. But one perhaps unexpected exception is the relative power of its equity market.
The market capitalisation of the Johannesburg stock exchange, some $951bn, is 294 per cent of the size of the country’s $324bn gross domestic product, according to data from the World Federation of Exchanges, Thomson Reuters Datastream and the IMF.
This is the second highest in the world after slightly anomalous case of Hong Kong, whose market cap to GDP multiple of 1,279 per cent is driven by its profusion of mainland Chinese companies (taking China and Hong Kong as a whole gives an unexceptional multiple of 126 per cent).
All of which leaves South Africa comfortably ahead of financial hubs such as Singapore, Switzerland and the UK, and with virtually double the ratio of the US.
So, something at last to celebrate for a nation plagued by sluggish growth, poverty and the highest level of structural inflation of any major economy. Except, maybe not.
John Ashbourne, Africa economist at Capital Economics, for one, has concerns as to how sustainable the situation may be.
“The JSE has been completely separate from the health of the South African economy for some time and I just wonder how long that can continue. I don’t think it’s sustainable,” he says.
Rhynhardt Root, a portfolio manager specialising in South African equities at Investec Asset Management, says he can “completely see why one would look at these stats and go ‘gosh, that doesn’t feel right or sound right or look right’ because the domestic growth backdrop has deteriorated, inflation is a problem, there are twin deficits, then you look at the stock market and market capitalisation to GDP is so high.”
However Root argues the situation is sustainable because South African-listed companies derive around two-thirds of their earnings from outside the country, and are thus not overly dependent on their spluttering domestic economy.
“We have been fortunate to have a number of companies that originated in South Africa that have done exceptionally well globally,” he adds.
This is borne out by the fact the four of the five largest companies on the JSE are so international they now have joint or primary listings elsewhere: British American Tobacco, brewer SABMiller, luxury goods group Richemont Securities and miner BHP Billiton.
The other member of the top five is Naspers, a printing business whose 34 per cent stake in Tencent, the Chinese instant messaging service, is worth more than Naspers’ own market capitalisation.
Several other large companies, such as MTN Group, a telecoms provider, and Aspen Pharmacare Holdings, have also made hay overseas.
Mark Appleton, South Africa analyst at Ashburton Investments, argues the country “wouldn’t look a big outlier” in terms of market cap-to-GDP when its high level of overseas earnings is taken into account.
