Exchange evolution: JSE’s Valdene Reddy on why South Africa is rising like a phoenix

A top-20 global exchange, the most active platform in South Africa and largest on the African continent, the Johannesburg Stock Exchange (JSE) has nevertheless spent much of the past decade in the doldrums, with sluggish volumes, negative weightings and lacklustre listings. During the past two years, however, all that has changed, with promising growth numbers driven by an uptick macro performance and a sea change in political will. So, what has the exchange been doing to supercharge its growth status – and is it ready to play with the international big boys?

“First and foremost, we always focus on how we can run a premier, world-class exchange,” explains Valdene Reddy, director of capital markets at JSE. “We then look to see how we can diversify to take advantage of evolving trends, develop new areas of interest for our clients and draw on our scale as the biggest exchange in the continent.”

As a multi-asset platform, this diversification provides a healthy core basis for the exchange to cross-sell between different markets. While equities and bonds are the strongest asset classes in South Africa – with equities, in particular, both active and diverse – that has also led to a healthy and increasingly sophisticated derivatives market covering equity, currency, commodity and interest-rate products.

From a markets perspective, the JSE has recently invested significantly into product development, particularly around enhancements to its data solutions. While it might not be at the acquisition or investment scale of some of the international majors yet, the exchange has identified the value proposition of enhancing data analytics and is working towards building out its capabilities in this space – including a collaboration with market data provider big xyt to bring in a quality data-analytics solution that its brokers can access to enhance their trading in the equities market.

On the technology side, the JSE also recently expanded its cloud-based colocation services offering, in collaboration with Beeks Group and IPC Systems. Building on the original colo centre launched in 2014, which allowed clients to place their trading equipment in the JSE’s data centre to enable faster market access, the new Colo 2.0 solution gives its clients the ability to access on-demand private cloud computing and low-latency analytics to self-manage and configure their infrastructure.

“Market quality and liquidity are front and centre for us, and to support that we are looking at improving product functionality, as well as expanding geographic access and diversifying our client base, not just for capital raise but also to boost secondary market trading, especially in our equities market,” reveals Reddy.

These investments and upgrades have contributed to an exceptionally strong year to date for the JSE, both in terms of returns and activity. “Month-to-date we are up 52% versus January last year,” explains Reddy. “Average daily volume year-to-date is up 41% – so where we were looking at a ZAR16 billion daily average value traded in our equities market, we’re now sitting at about ZAR22 billion, while our market is up 7% year to date. We’ve touched fresh record highs in our indices in February, and it’s been an absolutely stellar performance.”

Reddy likens the recent performance to “waking up from a sleeping decade”. The exchange has been discounted in its valuations for the past 10 years, at its worst trading at around a 40% discount to US and development market comparisons. Since the formation of the country’s new Government of National Unity in 2024, however, the market has rallied, and that discount gap has tightened substantially. “Since May, notwithstanding some ebbs and flows in political stability, there have been massive moves in structural reforms to get South Africa to the top line growth of 3% GDP that we’re looking for,” says Reddy.

The tide of international interest has also turned. South Africa has seen a significant downturn in its weighting in global emerging market indices in recent years – from a peak of 10% all the way down to 3% at its lowest. As a result, the country saw a sell bias from foreigners over that period, as they followed other markets that had increased in weighting, meaning a broadly negative/underweight to neutral positioning from offshore investors. The constrained macro environment also impacted the primary market, with many de-listings and delayed listings. But the climate is changing.

“We saw a lot of interest come back at a macro level for the market at the end of last year, and that has set the tone for more listings,” says Reddy. The JSE saw eight new listings in 2024, including two which were converted from the UK market.

“What we’re seeing from our peers in developed markets like the UK and Europe is that they’re also struggling for flow allocation and capital raise, as there is a massive shift in general towards the US, which is commanding the lion’s share of activity. That has been where the attraction factor is,” explains Reddy. “But what we’re seeing now is a lot more companies from the UK and European markets interested to list in South Africa. We also have our own top-40 companies, most of which are global majors. So, we see South Africa serving as a growth platform, not just for South African companies but for global entities as well.”

That includes international companies such as France’s Canal Plus, which is reportedly looking to acquire South African entertainment firm MultiChoice, this year for upwards of ZAR30 billion (US$1.62 billion), a deal that Reddy believes could convert into a potential listing as the group restructures post-merger. The exchange is also attracting international investment trusts, including firms such as UK-based Assura PLC, a listed real estate investment trust (REIT), which applied for a secondary listing on the JSE in November.

For that institutional market, while around 55% of their assets remain onshore, they are also keen to add offshore exposure. “The more dual listings we get into South Africa, and the more diversity of clients, the healthier this marketplace becomes, not just as a South African market, but also as a platform for a globally relevant marketplace,” says Reddy. “I think that’s the shift you’re going to see in South Africa. We will be an emerging market, but playing from a global market perspective.”

Overall, the JSE has seen a strong uptick in additional capital raising – through several channels, including IPOs, corporate actions – such as unbundlings or acquisitions – and offshore flows into SA listings. “Last year, we saw over ZAR100 billion in additional capital raises, while the pipeline of our existing companies looks very healthy,” says Reddy. “With the backbone of a deep institutional market, with our attractive time zone and with the alignment of our regulation and listings requirements attracting foreign players back into the market, I think the future is very optimistic for South Africa over the next two to five years.”

A number of new products, including actively managed certificates and actively managed exchange-traded funds (ETFs) in the structured products and equities market, are supporting cap hike activity. “That pipeline is knee deep,” emphasises Reddy. “We’ve had a whole host of new AMCs and ETFs listed last year. That blend of active and passive management has led to more selection, more transparency, more on-exchange product being demanded and more access for investors. We see this as a crucial new area.”

Sustainability is another area of growth. Following the launch of its sustainability segment, the exchange has seen almost 70 new issuances in the asset class, with a healthy pipeline still coming through.

“As people become cognisant of ESG elements, they want to allocate that,” says Reddy. “We’ve seen a massive issuance in the debt market on the sustainability segment, including green bonds, sustainability-linked bonds and social impact bonds.”

That has played out into an appealing climate for the bond market in general, particularly because yields are still fairly attractive in South Africa, and on a real return basis, they still stands strong. “We are still seeing good demand, especially from the foreigners in our bond market for the debt issuances, and especially in our government bonds,” says Reddy, although she would like to see more corporate bonds come to market. “Trade activity in the bond market also remains robust because of the yield perspective, and because of South Africa improving on some of its credit rating stats, meaning we're not an exclusionary factor anymore.”

For South Africa to take its place among the top players, though, it needs to be both internationally relevant and globally respected – and that means healthy market structure, transparency and liquidity, supported by a robust regulatory framework.

In terms of liquidity, the exchange has been somewhat crowded out in recent years, and this is a primary issue of focus. “We need to expand our addressable universe by getting new listings and new players into the market, and that remains a focus,” says Reddy. To achieve that, the JSE has streamlined its regulations, and expanded its listing framework to include a host of fast-track listings, with more than 18 jurisdictions now approved. It has also started new global roadshows to attract new players.

The new Colo 2.0 solution should also encourage liquidity, as where previously clients had to heavily invest in capex to access the market, they can now utilise shared services in the cloud, which should attract bigger trading partners and deepen that liquidity. Additional features, such as the recently introduced self-match prevention mechanism, added to a continued focus on competitive pricing and a shift towards bringing in different block discovery mechanisms, should all combine to support greater scale.

“We have a mix of high touch and low touch, local and offshore, institutional and fast money, and we try to respond to all these clients who have all these different trading mechanisms,” explains Reddy. “So, the block discovery will suit some of our institutional clients, but our on-book liquidity will remain robust. South Africa is one of the few markets in the world that still has a price formation happening majority on-book, on-exchange, rather than losing that liquidity to dark pools, and I think that’s important.”

When it comes to regulation, however, the self-regulating JSE is firm in its own positioning – and it will not be rushed. “The global arena has far outperformed when it comes to the quantity of regulation, and I don’t mean that in a good way,” says Reddy. “It’s become quite cluttered, and sometimes that overlapping regulation and all these synergies end up counterproductive to what it was intended to achieve. From a South African perspective, we are very cognisant of all that we have to do from an equivalence perspective – especially as over 30% of our market is dual listed. We will ensure that we stay globally relevant to changing regulations, but we will remain selective.

“That’s the beauty of the South African marketplace. The ecosystem is so invested, we can play by global standards without chasing every single change. Sometimes, as in the case of T+1 for example, that might mean waiting for things to settle before we make a decision.”

So, what can we expect from the JSE in 2025? There are lots of exciting developments on the horizon, including a focus on new markets, an expansion into digital assets, a sizeable infrastructure review and a new connectivity solution. The exchange launched a new carbon market last year and saw its first trade done on that in January. Its private market, launched two years ago, is also gathering pace.

At the heart of its mission, the JSE sees itself as a pillar of financial market infrastructure, with the integral role of facilitating capital raising and trading. “So how do we bring the best, most relevant and most refined products to market?” asks Reddy. “How do we put the tech and infrastructure in place to be universally accepted, to attract local and offshore clients, and to be the best in class? And finally, how do we ensure that the ecosystem is thriving and robust in terms of functionality and liquidity, so that it is a healthy market in which to trade? Those are my top priorities.

“We are 137 years old and there’s a lot of muscle in that. We’re ready for the next chapter of change.”