Donna Block
European markets jumped ahead. Asia hit an 11-year low. The Athens exchange has a positive outlook ahead of privatisation, while the Heng Seng has lost 2% of its value. Welcome to the stock markets of the world.
What does it all mean and what is the Heng Seng anyway? The Heng Seng is an index, or grouping of stocks, that trades on the Hong Kong stock exchange. But what does it matter halfway across the world in South Africa?
The answer is that we have become part of the world financial community. What affects one market often spills over into another as the big players who buy stocks and bonds in one part of the world usually do so in another. Nowhere is the saying that when the United States sneezes, the rest of the world catches a cold more true than on the world’s stock markets.
Stock market madness began more than 450 years ago when the first exchange was formed in Belgium in 1531. Formal stock exchanges were created to provide market places for stocks and bonds similar to those for gold, coffee and livestock.
The first English stock exchange was formed in 1773 in London. Today the London Stock Exchange operates the world’s largest market for trading in international securities and more than 530 foreign companies have chosen to list there. Old Mutual is set to join them.
In New York City, brokers often got together under an old buttonwood tree on Wall Street. It was there that they organised the New York Stock Exchange in 1792 and there it still remains.
The New York Stock Exchange’s Dow Jones Industrial Average, an index used to measure the performance of the US financial markets, reflects the health of the US economy through the top 30 companies. All but a handful of these have major business operations throughout the rest of the world,one reason why the exchanges often follow each other up and down.
In London, the main index is the Financial Times Stock Exchange 100, or FTSE. After New York and London, the most important index is the Nikkei in Japan, whose current misfortunes have been felt throughout the world. Japan has the largest exchange in Asia, with Hong Kong coming in a close second.
Throughout the 1980s, phenomenal economic growth led by thriving exports and a booming property market fuelled these exchanges. Today, a weak yen, stubbornly high interest rates and bad monetary and exchange rate policies are fuelling the Asian Crisis. The downturn in Asia is affecting emerging markets around the world and has been dubbed the “Asian Contagion”.
Today there are stock exchanges in more than 100 countries with emerging markets the buzzwords for keen moneymakers. Or, as they are now known, “submerging markets”. South Africa is in this category along with Argentina, Brazil, Korea, Greece and Chile among others.
It’s easier to tell which is an emerging market if you know which ones are not: the United States, Canada, Western Europe, and Japan. In fact, the whole world is an emerging market, except for those economies that are already very rich and productive.
But not all emerging stock markets are created equal. Not only are the fundamentals and the levels of sophistication different, but the markets evolve at different speeds. Some can be categorised as “frontier markets” because they are so small, for example Malawi where, until recently, there was only one broker and two stocks to trade.
In some ways, South Africa is not an emerging market at all. The financial markets are fairly sophisticated, and many well-run companies have been around for more than a century.
The Johannesburg Stock Exchange (JSE), with more than 600 listed companies and a market capitalisation, or value, of approximately R1,3-trillion, or $230-billion, is bigger than all the other stock exchanges of Africa combined. But despite its slick appearance and the protestations of its players, South Africa possesses many of the defining qualities of an emerging market.
Firstly, in spite of all the efforts of the African National Congress to convince the world about the steadiness of a post-Mandela South Africa, lingering fears persist about the future political stability of the country.
But South Africa has the infrastructure and technical expertise to shed the emerging market tag. If it can ride out the current financial hurricane and start creating jobs, South Africa could conceivably join Britain, the US and Japan as one of the world’s market leaders.
This is the first in a series of articles about stock exchanges around the world, designed to help you become a player in the global economy. Next week: North America