The Markets Jacques Magliolo
Does anyone actually know what is going on out there? The markets are becoming more confusing and complex by the day.
Investors have to keep track of a vast amount of changing Johannesburg Stock Exchange and company law regulations, market movement, fundamental issues as well as the factors which affect these.
The question is, can they follow this new market with clarity and understanding; not to mention closely enough to make informed decisions when trading shares?
While it may be the very nature of markets to change constantly and for such movement to be rapid, in South Africa the speed is astounding and alarming — even to the point of bewildering.
Take, for example, the vast number of companies which have been removed from the JSE board since the unbanning of the African National Congress in 1989 and the subsequent release from prison of President Nelson Mandela.
In 1990 there were some 900 listed companies on the JSE. Today there are 638. What happened to nearly 300 companies? Did they go bankrupt, were they suspended or placed under liquidation? And how is it possible for fewer companies to represent a significantly higher overall market capitalisation?
In 1993 the overall market capitalisation was R533- billion, while today it is more than R800-billion, representing an increase of 50 percent in two years.
Surely, when there are fewer companies listed and values continue to climb, the market becomes overbought and teeters on the edge of collapse? To confuse investors even more, overbought (expensive) markets in South Africa do not necessarily become bearish.
Even normal company law fundamentals are changing. There is a general principle that states: shareholders have first option on any future share issue. If you’re a shareholder you would, therefore, expect to be notified by a company that it is about to issue new shares.
Not so! the JSE is introducing a policy which will permit directors to obtain a blanket approval from shareholders to enable the company to issue new shares to foreign investors.
To answer the question of how investors understand enough about markets without a masters degree in business: some analysts say that it isn’t a matter of knowing how markets work, but of being aware that changes are being implemented.
“Understand that, and you can always find out how your particular share could be affected by changes when you want to trade the share,” he says.
Problem is, if a company becomes a cash shell and is being delisted, a shareholder could loose out if he doesn’t understand the pros and cons of the newly introduced Cash Shell sector of the JSE.
Another analyst suggests: “Keep a continuous check on your investments by reading the stock price pages of the JSE and the market indicators.”
Sound advice. Again, this mechanism is being altered. Instead of using only A-grade stocks to calculate the individual sector indices and thereafter the overall index, the JSE will be using all shares in the future.
While this may be a better method, it does render comparisons to previous years meaningless.
What with rights issues, share splits, unbundling, foreign investments affecting company books,
the future scrapping of the finrand, changing JSE trading systems, banks/institutions becoming
brokers from November, insider trading, fraud, political instability and October elections, we should have fun trying to follow market trends.