Interview: Stephen van Coller
How has foreign participation influenced the capital markets in South Africa?
STEPHEN VAN COLLER: It is relatively straightforward to both enter and exit South Africa’s capital markets. Our trading platforms are on a par with global standards, and they are continuously being upgraded to be able to handle larger volumes.
Because our equity market is diverse and has performed relatively well, and South African bonds are offering strong returns, there is a net inflow of investment into the country.
There is also a level of volatility that five years ago was unheard of but today is the norm. The rand, because of its liquidity, often serves as an emerging market proxy, leading to people trading in the currency not out of an appetite for the rand itself, but for the proxy function it serves in emerging markets. Appetite for investing in emerging markets will remain strong so long as Europe and the US continue to struggle economically.
What are your concerns regarding the current and pending trading legislation?
VAN COLLER: South Africa is yet to finalise capital and trading regulations for banks. There is currently ongoing industry-wide dialogue which will shape the final outcome, with some conclusions anticipated before the end of 2012.
One pressing concern is the move towards a central exchange for bond clearing, for which the market implications have not yet been fully debated and agreed. If, as a dealer, everyone else can openly see the risk on your books, you will be less inclined to take on risk. This changes the dynamics and makes for a more agency-traded market, and will significantly increase the costs.
The legislation on stamp duty for equity trades is also currently being reviewed, with significant industry dialogue taking place in this regard. The biggest debate revolves around the treatment of derivatives and synthetic trades due to the current (proposed) rate of 0.25% being greater than the bid offer currently charged.
We need to be careful that we do not make hedging equity positions expensive, as this could affect market liquidity, and may ultimately force liquidity and trading offshore.
We are continuing to engage with the regulators and exchanges, and are hopeful that these issues will be ironed out by the end of 2012.
What has been the corporate sector’s response to the economic downturn?
VAN COLLER: Given the current economic uncertainty, corporates are not actively expanding, and money is largely being kept in the banks.
However, there is reason to expect further mergers and acquisitions and capital restructuring across all sectors. In industries such as mining, construction and retail, companies are consolidating to drive scale and efficiency to counter the recent softness in sales revenues.
Most South African companies have adequate liquidity, but in times of low growth rates, enterprises look to optimise their capital structure.
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