It is no secret that market conditions are tough, and the regulatory burden on companies is intensifying world over, but on the local front, the Johannesburg Stock Exchange (JSE) paints a clear picture of some of these struggles, as the size of the local bourse continues to dwindle. But it is not only a challenge being faced by the JSE.
Key themes for this week include:
- Dwindling listings on JSE is cause for concern
- China slips into deflationary territory
- Jerome Powell offers little direction as to future United States (US) monetary policy
GLOBAL DELISTING DILEMMA: NAVIGATING CHALLENGES ON THE JSE AND BEYOND
As the JSE contends with a surge in stock delisting, a global pattern has emerged, where stock exchanges, worldwide are grappling with a decline in stock listings when compared to the number of exits. The JSE, once a vibrant hub, reflects this challenge, having experienced an average of 25 company exits annually, over the past seven years.
Simultaneously, international stock exchanges face comparable struggles. A comparative analysis by industry experts across the globe indicates that the JSE’s 28% decline in company value is relatively favourable when contrasted against other global exchanges. Luxembourg and Frankfurt, for example, have experienced more substantial declines of 52% and 35%, respectively. Even the New York Stock Exchange and the London Stock Exchange, though not as severely impacted, have witnessed a 15% and 19% decrease in value, respectively.
This phenomenon highlights the intricate interplay between economic downturns, geopolitical uncertainties, as well as the financial burden of listing, and ultimately, how all these factors are affecting exchanges globally. Each market, however, also contends with its own unique set of challenges, reflecting the complex dynamics at play.
The financial burden of going public is a pivotal concern, especially for small and medium-cap companies. The cumulative expenses associated with auditing charges, listing fees, and compliance requirements for public and listed firms are exorbitant. This financial burden acts as a deterrent to companies listing and is also a major contributor to the growing trend of delisting.
Geopolitical events further underscore the interconnected nature of this challenge. The ongoing financial decoupling between the United States and China, for example, resulted in the voluntary delisting of Chinese state-owned companies from Wall Street. This marked a significant escalation in tensions between the two countries, which not only impacts the world’s two largest economies but has sent shockwaves across the globe, shaping the landscape of international stock exchanges.
As companies reevaluate their presence on stock markets, the path forward for global bourses demands a holistic understanding of the interconnected factors shaping the global landscape of stock exchanges. Navigating the delicate balance between attracting listings, while ensuring regulatory compliance, stock exchanges worldwide must evolve to address the changing needs of companies.
The cost considerations and regulatory landscape are integral components that influence the decisions of companies to list, stay listed, or choose the route of delisting. As South Africa and the JSE navigate these challenges, they contribute to a broader narrative of the evolving dynamics of the financial world. The global community of stock exchanges faces a shared imperative to adapt to the evolving economic and regulatory landscape, ensuring a sustainable and dynamic future for companies in the ever-changing world of finance.
EQUITY MARKETS NAVIGATE UNCERTAINTY
Futures contracts tied to the S&P 500 and Dow Jones showed a modest uptick of 0.2%, whereas Nasdaq 100 futures were flat on Thursday. Traders are awaiting any significant catalysts, as they try to gauge the trajectory of monetary policy. Attention has shifted to upcoming US CPIT data due for release next week, following Fed Chair Jerome Powell’s comments at Thursday’s Division of Research and Statistics Centennial Conference in Washington, that offered little indication of the Fed’s monetary policy course. Simultaneously, the earnings season unfolded with entertainment company, Disney’s premarket trading witnessing a more than 4% surge, driven by earnings which surpassed expectations and an upward revision of the annual cost-cutting goal to $7.5 billion. Conversely, ride-hailing firm, Lyft experienced a decline of over 1.5% due to lower gross bookings growth compared to its larger rival Uber, despite beating revenue and profit estimates.
Shifting to the United Kingdom’s (UK’s) FTSE 100 index, it recorded marginal losses, hovering near the 7,380 mark on Thursday. The market continued its marginal pullback, with a keen focus on the latest corporate results for insights into how businesses are adapting to tighter UK monetary policy. Commodity-backed giants in London, including BP and Shell, faced declines of 1.5% and 0.5%, respectively, reflecting evidence of a further slowdown in the Chinese economy. Global sports betting company, Flutter, plummeted 7% as its earnings fell short of estimates. In contrast, global biopharmaceutical company, AstraZeneca, saw a 2% jump as success in its cancer medicines led to an upward revision of the profit outlook for the year. National Grid added 2% as investors welcomed the energy company’s new investment plans.
European equity markets exhibited a reversal of losses to trade slightly higher on Thursday, with the German DAX and the pan-European STOXX 600 both up 0.2%. Investors evaluated the global economic and monetary policy outlook during the ongoing earnings season. Industrial goods and services companies saw gains of over 1%, while travel and leisure stocks experienced a more than 3% decline, and oil and gas stocks showed a slight dip. Corporate news featured Deutsche Telekom AG raising its 2023 guidance after robust third-quarter profits for the telecommunications company. However, concerns about inflation were expressed by the European Central Bank’s (ECB’s) chief economist, and Ireland’s central bank chief suggested potential further tightening.
In the Asian markets, the Shanghai Composite inched up 0.03% to close at 3,053, while the Shenzhen Component experienced a 0.2% loss at 10,032 in mixed trade on Thursday. Investors reacted to data indicating a larger-than-expected fall in consumer prices in China for October, alongside the thirteenth consecutive monthly decline in producer prices. These figures added to signs of weakening demand and a fragile economic recovery, sparking speculations that the Chinese government will implement additional monetary easing.
Turning to the JSE All Share Index, it trimmed initial losses to trade slightly down at around 72,300 on Thursday afternoon. Investors closely monitored global economic data and corporate updates, with a focus on China’s economy, which slipped into deflationary territory in October, casting doubts about China’s fragile recovery. Attention, however, remains focused on the outlook for the next US interest rate decision, with markets hoping the Fed Chair will shed light on possible directions for US interest rates. On the local front, mining and manufacturing data indicated additional contractions in September, with resource-linked sectors being the worst performers, down 7%, while industrials experienced a slight rise.
GOLD AND OIL MARKETS: RECENT DEVELOPMENTS
On Thursday, West Texas Intermediate Crude futures saw an upward movement, inching closer to $76/barrel, but still faced persistent pressure due to escalating uncertainties in demand, along with the alleviation of concerns over potential disruptions in Middle East supplies. Wednesday witnessed a more than 2% decline in oil prices as they hit their lowest levels since mid-July. This drop was fuelled by emerging demand concerns in both China and the United States. In China, consumer prices fell lower than expectations, and producer prices marked their thirteenth consecutive monthly decline. Additionally, Chinese exports also contracted more than anticipated. In the US, the Energy Information Administration adjusted its forecast, anticipating a 300,000 barrels per day decrease in total petroleum consumption this year, a reversal from its prior projection of a 100,000 barrel per day increase. On the supply side, US crude inventories surged by nearly 12 million barrels last week, the most significant increase since early 2023, while Russian shipments hit a four-month high.
Meanwhile, gold maintained a position below $1,950/ounce on Thursday, hovering at its lowest levels in three weeks. This downward trend was influenced by hawkish commentary from central bank officials during the week. Federal Reserve Governor, Michelle Bowman, hinted at the possibility of further rate hikes due to the robustness of the US economy, while Minneapolis Fed President, Neel Kashkari, emphasised that it is premature to declare a victory over inflation. In Europe, Governor of the Central Bank of Ireland, Gabriel Makhlouf, suggested that further tightening should not be ruled out, and Bundesbank President, Joachim Nagel, highlighted the EU’s challenges in reaching the inflation target. Gold also faced pressure as the geopolitical risk premium associated with the Israel-Hamas conflict continues to ease.
CURRENCIES IN CONTEXT
On Thursday, the US Dollar Index held its ground around the 105.5 mark as investors continued to evaluate the trajectory of the Fed’s monetary policy. Market sentiments remained divided on whether US interest rates have already reached their peak. Recent data revealed a decrease in weekly jobless claims by 3,000 to 217,000, slightly below the anticipated 218,000, following an upwardly revised 220,000 in the previous period. Powell refrained from making comments on interest rates or the economy during his appearance at a conference commemorating the Fed’s Centennial of the Division of Research and Statistics.
The euro saw a retreat below the $1.07/€ threshold, stepping back from its seven-week peak of $1.0756/€ on 6 November. This shift followed a series of remarks by central bank officials. ECB’s Vice President, Luis de Guindos, highlighted the likelihood of a slight contraction or stagnation in the eurozone’s economy in the fourth quarter, emphasising the ECB’s commitment to a data-dependent approach. In contrast, policymaker, Robert Holzmann, stressed the need for vigilance regarding inflation and readiness to raise rates when necessary. Market expectations now suggest the possibility of the ECB implementing interest rate cuts of approximately 95 basis points by the end of 2024. Last month, the ECB broke a precedent of 10 consecutive rate hikes by leaving interest rates unchanged at multi-year highs.
The British pound dipped below the $1.23/£ level after recently experiencing its most substantial weekly gain in almost four months. This decline followed comments from the Bank of England’s (BoE’s) Chief Economist, Huw Pill, who suggested that rate cuts starting from the middle of next year were not an unreasonable prospect. Presently, investors are factoring in a likelihood of over 50% that rates will remain unchanged until June 2024, with a higher probability of a 25-basis point rate cut in August next year. Despite the BoE maintaining interest rates at a 15-year high just last week and emphasising its commitment to combating inflation, the pound faced downward pressure.
The South African rand traded around R18.60/$, after strengthening towards the R18.20/$ mark earlier in the week which marked its highest level since early August. The surge came on the back of a weaker dollar. The weakening of the rand back to current levels can be attributed to continuous uncertainty and profit taking in the market. On the domestic front, South African Reserve Bank (SARB) Governor, Lesetja Kganyago, reiterated that the SARB’s battle against inflation is ongoing, as he emphasised risks to the inflation outlook. He particularly warned about deteriorating public finances potentially leading to higher rates. Meanwhile, South Africa’s National Treasury predicted larger budget deficits and increased debt for the next three years.
The rand is trading at R18.66/$, R19.91/€ and R22.81/£.
Sources: Refintiv, Reuters, Bloomberg, Investing.com and Trading economics.