How SA’s financial indicators compare with emerging markets

Financial market movements are an important part of the daily information an economy gets. When it comes to stock markets, forex markets and interest rates, how does South Africa compare with other emerging markets?

There are five financial market indicators that are fundamental to an economy (stock market performance has been left out for now).

Stock market size: Where does the JSE fit in?

South Africa has one of the best and deepest financial markets in the emerging market world. The JSE is the 18th largest stock exchange in the world, which is impressive given that the country’s GDP comes in at 34th. The JSE was 16th largest just two years ago, but with lacklustre performance it has slipped back a little.

The JSE is only the fifth-largest emerging market stock exchange, but South Africa has the third-largest market capitalisation. This is because India and China have two stock exchanges each, and all four are larger than the JSE. South Africa now has a few other exchanges but they are still small in a world context. They are, however, starting to add interesting dimensions to the overall picture.

The JSE market cap was $988,4 billion at the end of November, which is about three times SA’s GDP. The JSE is by far the largest stock market in Africa; the next biggest, Morocco’s Casablanca, has only about 6 percent of the market cap of the JSE. Botswana is fourth largest but does not disclose its data to the World Federation of Exchanges (WFE). Its market cap is about $39 billion, which is between Cairo (third largest) and Nigeria (fifth).

How important is the rand in a world and emerging-market context?

The fact that the JSE is in the top 20 exchanges in the world helps other parts of the South African financial market — turnover in the rand foreign-exchange market is one example. With the JSE in 18th place with regard to market capitalisation, the rand punches above its weight internationally.

While the US and UK dominate world trading of foreign exchange, South Africa was the largest emerging market regarding volume of foreign exchange traded for a number of years from 1998.

This is a good indicator of the overall importance of a country in the world of finance since bonds and stocks get traded in the local currency — resulting in trade between a foreign currency and the local one.

At present South Africa has the 25th largest forex turnover, and is fifth largest among emerging markets in the dollar value of forex transaction turnover.

China, which had a very small and closed forex market, has in recent years leapt past all the other emerging markets in size and importance, but accounts for just over 1 percent of the total forex turnover of the world. In SA, the daily turnover (not profits or anything else) is $21 billion a day! Worldwide, forex turnover is in the region of $7 trillion a day.

So, while South Africa is important in Africa and the biggest by far on the continent, it is still very small on a world scale. However, many developed economies such as Ireland do not have the turnover that SA has in the forex market.

The rand is an interesting case of a currency that has been an important emerging market currency — sometimes the most important — but like several South African indicators, it is been overtaken by other developing markets such as China, Russia and India.

South Africa will always be a deep and liquid market in the forex game but is probably going to be overtaken by Brazil in the April 2019 survey on the total turnover and importance of forex volume.

SA will then be the smallest of the Brics markets, whereas in 1998 it was the biggest.

However, forex volume is a bit of a vanity indicator once there is enough turnover in a market. I believe around $12 billion is probably enough for a liquid market to function. — Moneyweb.