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A stagnant economy that spurred foreign investors to take their money out of the country, as well as depressed trading activity in SA, has weighed on the Johannesburg Stock Exchange’s 2019 profits.
The stock exchange released a trading update on Friday morning warning shareholders that both its headline earnings and earnings per share were expected to fall by between 20% and 26% in the year ending on 31 December.
"These results are in line with expectations," said the JSE in a statement posted on the Stock Exchange News Services (SENS) while adding that the stagnant local economy affected investors’ appetite to plough money into SA.
SA’s main bourse had a tough first half, recording an 11% decline in value traded in the equities market. At the same time, the exchange recorded over R30bn in divestment by foreign investors in the six months to June.
On Friday, it said this decline in trading activity, together with changes in its billing for equities trading and the hiring of new staff, were behind the earnings decline.
Furthermore, it made more investments into the business and incurred some hefty once-off costs. One of these was technology investment to improve the JSE’s trading and clearing system. The exchange also agreed to buy a 74% stake in the country’s second-largest share-register business, Link Market Services SA, for R224.5m. It said R6m of the acquisition price fell in the 2019 financial year. The JSE further incurred a R37m once-off cost during a leadership transition, as Nicky Newton-King retired as its CEO at the end of September.
The exchange said as weak as the trading environment is in SA now, it will continue investing in new technologies. More and more companies are closing their equities trading desks in SA. Arqaam Capital announced earlier this month that it plans to close its SA office. Mazi Macquarie Securities is shutting down its local cash equities trading business and Vunani also said it is evaluating the future of its stockbroking business.
The JSE generates about 60% of its income from trading of equities. As more local equity trading desks fall in trouble, the exchange has realised that it needs to diversify its revenue streams, hence the increased investments in technology this year.
"We remain confident in the JSE’s targeted, strategic plans to grow and diversify revenues, and to invest in key technologies. These actions are necessary to maintain the long-term sustainability and competitiveness of the JSE as a critical component of the South African financial markets ecosystem," the exchange said on Friday.
