South Africa: JSE's high capitalisation unsustainable, warns economist

Jul 16, 2015

Its market capitalisation is 294% of the size of the country’s GDP.

South Africa's high market capitalisation-to-GDP ratio is concerning, according to an economist.

John Ashbourne, Africa economist at Capital Economics, told the Financial Times he has concerns as to how sustainable the situation may be.

“The Johannesburg Stock Exchange (JSE) has been completely separate from the health of the South African economy for some time and I just wonder how long that can continue. I don’t think it’s sustainable,” he said.

The market capitalisation of the Johannesburg stock exchange, standing at $951 billion (€862.5 billion), is 294 per cent of the size of the country’s $324 billion gross domestic product, according to data from the World Federation of Exchanges, Thomson Reuters Datastream and the IMF. This is the second highest ratio in the world after Hong Kong.

However, Rhynhardt Root, a portfolio manager specialising in South African equities at Investec Asset Management, told the newspaper he believes the situation is sustainable because South African-listed companies derive around two-thirds of their earnings from outside the country, and are thus not overly dependent on their spluttering domestic economy.

However, he worries that many African companies are now choosing to list in cities such as London and Toronto, rather than Johannesburg.ADNFCR-2976-ID-801794496-ADNFCR