Big SA firms dependent on pension funds | Fin24
 
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Big SA firms dependent on pension funds

Aug 11 2014 07:29
Fin24

Johannesburg - Without the huge asset base in pension funds SA companies such as SABMiller [JSE:SAB], Anglo American [JSE:AGL], BHP Billiton [JSE:BIL], Richemont [JSE:CFR], MTN [JSE:MTN] and a host of others would not be in the top companies in the world, according to economist Mike Schüssler.

SA's huge pension asset base has also allowed the country easy access to funds for major government projects as SA has one of the most liquid bond markets in the world.

This has allowed major state owned companies much easier and cheaper local access to funding.

Currently 70% of the revenue of the top 60 companies on the JSE comes from outside SA's borders, but the majority of the shares are still owned by South Africans - although foreign shareholders have increased and are nearly at 50%.

A very big factor in keeping the SA economy from sinking away completely is the size and soundness of its financial markets, according to Schüssler.

"All ranking publications over the years and major research organisations have been very complementary about our financial institutions from the banks to our financial exchanges," said Schüssler in an opinion piece written for TreasuryOne.

In the competitiveness reports SA banks and the SA financial exchanges have ranked consistently in the top five places and often right on top.

The rand is the ninth most traded in the world and the JSE is the 18th biggest stock exchange in the world.

The SA bond market turnover in 2008 was the 13th highest in the world making it liquid and one of the most important in the emerging world.

"Our ability to trade shares, bonds and foreign exchange has attracted positive attention of major pension funds from afar and they have again allowed our companies access to cheaper funding and helped many of them gain funding and listings on international exchanges," said Schüssler.

"Notice too that our financial markets outpreform the actual economy, which is not seeing the same ranking or growth as our financial markets."

SA markets as indicator

Often SA markets are an indicator of overall emerging markets, while SA's economy tracks the performance of developed economies closer.

This positive aspect can probably at least partly be traced back to the asset management institutions in SA, according to Schüssler, who in his view sees them as one of SA’s best service exports.

"They are clearly also helping to identify African companies that they think are good bets for the future while at the same time helping these companies improve their transactional openness to lower the cost of their funding," he said.

"I believe that they are doing in Africa what they did in South Africa from about the seventies onwards and that is to fund expansion and make African companies world players by slowly increasing funds available and also advising the companies from venture capital aspects to corporate governance."

SA undervalues its financial resources and often does not fully understand the value of the firms that operate in this sector, according to Schüssler.

"Without the big liquid sector many infrastructure projects would cost much more and SA firms would not have had the capital to invest in other countries on their way to becoming world beaters," he said.

"It is clear that were it not for SA's excellent financial markets and regulation of these markets along with the massive asset base, SA would not have been in the top 70 countries in the World Economic Forum report and probably at 58 in the IMD report - which only has 60 countries."

In his view SA would have had hardly any access to savings from the rest of the world and many of its companies may not have had the resources to expand into other countries.

"Now the trick will be to attract more foreign firms here," said Schüssler.

"I believe keeping an ear out for what the big financial firms are stating about where our companies should invest, might just teach us a lot in attracting investment."

- Fin24

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