A study by the University of Cape Town's Development Policy Research Unit (DPRU) shows that the decline in new listings has increased the concentration of large companies on the Johannesburg Stock Exchange (JSE).
The DPRU study was commissioned by the Association of Savings and Investments South Africa (ASISA) to provide a research-backed explanation for the contraction of the local stock market – more than 500 delistings over the past 25 years.
Delisting has left the local stock market dominated by a handful of large companies with significant market capitalisation. Delisting and the rise of unlisted or private markets is a global trend that has affected many stock markets around the world, but local studies show that new listings on the JSE have also declined so that smaller companies lost on the exchange have not been able to compensate, thereby accelerating the concentration of larger companies.
The study shows that most delistings from the JSE since 1989 occurred before 2005 and that most companies leaving the exchange after that date have done so as a result of mergers and acquisitions, Professor Aaron Bhorat, professor of economics and DPRU director, said at a recent ASISA briefing on the research.
The delisting was strongly influenced by South Africa's low economic growth and company-specific factors such as age, size, profitability and debt levels. Several other less significant factors also contributed to the delisting, including uncertainty about government policy.
Key findings of the JSE delisting research
- 514 companies delisted between 1989 and 2024 – 413 or 80% were delisted before 2005
- For the period 2007 to 2024 where data was available on why companies were delisted, the majority were the result of mergers and acquisitions.
- Older companies were less likely to be delisted.
- Larger and more profitable companies were more likely to remain listed
- Highly leveraged companies were more likely to remain listed
- Strong economic growth and strong rand make delisting less likely
- Policy uncertainty was a factor but did not have a significant impact on delisting
there was a crowd outside
Bhorat and his UCT colleagues, Leigh Neethling and Ayesha Saeed, say a widely used measure, the Herfindahl-Hirschman Index (HHI), shows that concentration levels of shares on the JSE are expected to increase by about 90% between 2006 and 2024.
The researchers say their paper, “Vanishing Acts: An Econometric Exploration of Firm Delistings in South Africa”, shows that not only do larger companies merge with or acquire smaller companies, but smaller companies also outcompete dominant companies.
He says larger companies are leading indices and have increased liquidity, while their smaller competitors are facing less investor attention, less access to capital and declining trading volumes.
This causes a feedback loop: continued delisting increases concentration, while concentration crowds out smaller companies that get less access to capital.
Bhorat and his team say this “crowding” of small-cap companies means that less innovative and growth-sensitive companies are listed on the JSE, while older, larger companies remain intact.
rise of big managers
Stock market concentration coupled with the rise of large local asset managers also creates potential problems for investors, a recent Investment Forum conference organized by the Collaborative Exchange in Cape Town and Johannesburg heard.
The top five stocks in the capped SWIX All Share Index market capitalisation, where the maximum size of shares is capped at 12%, make up a third of our market, Camisa chief investment officer Gavin Wood told the conference.
“That's great. But it gets worse because the top 10 make up more than half the market in terms of size. And then the top 15 make up two-thirds of the market in terms of size,” he said. The top 50 stocks on the JSE make up 91% of the market.
Meanwhile, some local managers have grown much larger – the 20 largest fund managers manage almost 90% of local investments, and the top 15 manage more than R100 billion, a 2025 survey of asset managers published by Multimanager 27Four shows.
Big fund managers are so big that their choice of stocks is limited – often to only 15 to 20 stocks on the JSE – because making a meaningful allocation to smaller companies would put them at risk of owning the entire company.
This means that larger funds are invested in very similar stocks because of their size, says Wood.
Big managers pick big stocks
A medium-sized manager may have an equity portfolio that holds many stocks outside the top 50, giving them a significant advantage over larger managers, because smaller stocks are often cheaper and a better source of market-beating returns, Wood said.
Wood said, if a manager invested R300 billion in equities, there are only 48 stocks on the JSE in which the manager could invest 1% of the portfolio without owning more than 10% of the company.
A manager with a R300 billion equity portfolio fund that wanted to invest 5% of the portfolio in each stock could choose from just 16 large companies' shares, Wood said, because 5% of a portfolio of this size would be equivalent to more than 10% of the shares in any number of smaller companies' issues.
Exacerbating the diversification problem, the 16 largest companies are now dominated by precious metals companies, making them much riskier than before, he said.
Blending weakens diversification
Typically advisors recommend mixing funds with a few big managers, but when all the big managers holding the same shares are combined, the result is similar to choosing a passively managed index fund — but investors are paying higher fees, Wood said.
When you combine South Africa's four largest equity managers, active shares – the sum of managers' shareholdings above or below the benchmark – are lower, but fees remain higher, Wood said.
Steps to Improve Listing
Alicia Greenwood, director of JSE Clear and director of post trade services at the JSE, said at the recent Financial Sector Conduct Authority conference the JSE is not unaware of the problem of concentration and is working on a number of initiatives to improve listings.
He said the good returns and the removal of South Africa from the Financial Action Task Force gray list had improved the appetite of international investors for South African investment.
Greenwood said there were six new listings last year, two more coming soon and a “robust pipeline” for the year ahead.
He said the JSE is involved in Operation Phumelela, an initiative that involves working with rating agencies and policy makers to ensure that the local market is attractive to both investors and companies seeking to list.
He said the JSE has significantly simplified its listing requirements without compromising the quality of listings and introduced lower listing fees for small and medium capitalization companies.
Greenwood said the exchange is also investing heavily in modernizing its infrastructure, particularly its trading and clearing systems, starting with equities and continuing to other markets over the next five years.
He said the initiative was targeted at highly traded and algorithmic investors to improve liquidity and volume on the exchange.
Greenwood said the JSE is also considering reducing its settlement period (when securities are received or funds are paid out) from three business days of trading to closer to the global norm of one business day of trading.
attracting foreign money
Greenwood said a fast-track listing process has also been introduced to encourage companies already listed on one of the 18 other major stock exchanges to dual list on the JSE.
Long trading hours that overlap with other major markets were also discussed at the conference.
Vukile Davidson, chief director of financial markets and stability at the National Treasury, said the Treasury is considering future amendments to the Financial Markets Act to incentivize issuers and investors. In the short term, it is working to facilitate the development of a synthetic financial center – a regional hub for managing money in currencies beyond the rand. According to the latest budget review, with a view to attracting funds to the sector and better managing the foreign savings of local investors, it is proposed to allow asset managers to manage portfolios and trade instruments in foreign currencies in South Africa.
This article was first published SmartAboutMoney.co.zaan initiative of Association for Savings and Investments South Africa (Asisa).
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