What shrinking JSE means

PORTFOLIOS ARE INCREASINGLY CONCENTRATED IN VERY FEW LARGE STOCKS

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As the number of companies listed on the JSE continues to decline, together with the absence of major new listings, the issue of concentration continues to grow for local investors. This adds significant risk, especially when it comes to retirement and pension funds.

Currently, the JSE has a total market capitalization of R20.9 trillion. The top five – Prosus, BHP Group, AB InBev, British American Tobacco and Richemont – account for half of this value (R10.7 trillion).

When you combine the top 20, that number rises to 80% (R16 trillion).

An excellent analysis of this problem by Alyssa Viljoen, equity analyst at Merchant West Investments, shows just how big this problem is for the country’s larger asset managers.

According to Viljoen, when it comes to daily volumes, micro- and small-cap stocks account for just 2% of daily volume (compared to the Top 40’s more than 80%).

She argues that because these asset managers are managing tens or hundreds of billions of rands in assets, they “simply cannot build meaningful positions in illiquid stocks without moving the price against themselves”.

Plus, with Sanlam effectively outsourcing its asset management function to Ninety One, this problem is arguably exacerbated.