SA’s equity-capital market has had its best year yet, JP Morgan Cazenove says, with about R143bn worth of issuance to the end of November.
This boded well for 2018, with growth equity in particular set to have a strong year, as global investors seek high-yielding homes for their cash, according to MD of UK and sub-Saharan Africa equity capital markets, Barry Meyers.
SA’s equity market was becoming "more active", Meyers said. JP Morgan Cazenove led the largest-yet South African equity market transaction in 2017 — the R38bn sell-down in Barclays Africa by now former UK parent, Barclays plc. It was joint book runner on the $1.2bn initial public offering (IPO) of Star (Steinhoff Africa Retail) in September, the country’s largest IPO on record. It also acted as joint global co-ordinator for the largest-yet rights issue in SA to finance an acquisition — Sibanye Gold’s $1bn capital raise to buy platinum group metals producer Stillwater Mining in the US.
Meyers said that emerging market companies that were listing in London were increasingly considering a secondary inward listing on the JSE to access the capital held by South African funds.
An inward listing on the JSE meant that South African retirement funds did not have to use their offshore allowance — capped at 25% and in many cases already at their limit — to access these companies.
Global investment banks were also focused on SA and were setting up regional teams here, Meyers said. This could partly be in response to the number of South African companies looking for international growth, including listings in London, which would enable them to raise capital in hard currency from a much bigger pool of investors.
Emerging-market equities delivered a 33% year-to-date return in 2017, outperforming developed markets by 14%, global investment bank, Credit Suisse had said in a note.
"We are only midcycle in the current bull phase for the asset class and [we] retain an overweight recommendation on emerging markets within a global equities portfolio," Credit Suisse said.
Despite its bullish outlook on emerging market equities, Credit Suisse maintained its underweight recommendation on South African equities, one it has held since November 2016.
The bank cited low economic growth, weak household spending, the effect of political uncertainty on investment and the fact that SA’s equity market was trading at a premium to global emerging market equities, as reasons for its position.
Interest rates were likely to remain higher than nominal GDP growth in 2018, which was consistent with negative year-on-year index performance, it said. Meyers said UK funds preferred to invest in emerging market companies that were listed on the London Stock Exchange (LSE), due to perceptions of strong regulatory oversight in that market.
"Overall, the state of the market is very strong and we expect a strong pipeline of IPOs in 2018 on the LSE," Meyers said.
While Brexit jitters resulted in some companies querying where to list, it had not affected the pipeline of listings in London, Meyers said. "We do get asked the question [about Brexit], but London is still the deepest and most liquid capital market outside the US," he said.