SE RELEASES SECOND STUDY ON BLACK OWNERSHIP ON THE EXCHANGE

JOHANNESBURG -Black South Africans hold at least 17% of the Top 100 Companies listed on the Johannesburg Stock Exchange, with 32% of the shares of these companies still to assess, says Trevor Chandler of Chandler & Associates, who headed the research team appointed by the JSE.

The 17% includes 8% held directly, mostly through empowerment stakes, and 9% through mandated investments, such as pension funds and unit trusts. The figure is understated as not all shares have been analysed. The research, done in phases on behalf of the JSE, aims to demonstrate what black South Africans own in the country's largest listed corporations. Part of the remaining 32% is likely to be owned by black South Africans.

"In a country undergoing economic transformation, it is important to have empirical data about black investment on the JSE," says Russell Loubser, CEO of the JSE. "The exchange has the records needed for meaningful research, as we carry out, clear and settle trades. We believe that this research gives South Africa a basis from which black ownership can be measured in future. With 32% of the equity yet to research, we believe that the ownership figure is actually understated. We also anticipate that the black economic interest will climb in future."

There is much debate about black ownership on the JSE. The purpose of the study was to present the facts in an impartial manner. The top 100 companies listed on the JSE used in the study represent 85% of the total market capitalisation of the exchange and therefore can be used as a proxy for the total market.

Last year's assessment revealed that black South Africans held 8% of the Top 100 companies through direct investment. This year, researchers found that the 8% through direct investment remains constant and that black South Africans also hold a further 9% of shares in Top 100 companies through mandated investments. Mandated investors do not select shares themselves, but gain exposure through life offices, pension funds, unit trusts or exchange traded funds.

The research is being done in phases due to the extremely time-consuming nature of the analysis. This year, the researchers had to wade through ten million share ownership records to assess half the shares owned through mandated investments. (The other half still needs be researched, meaning that the total number of shares held by black investors through mandated funds is likely to increase in future studies.) Verification agency AQRate confirmed the findings by checking the data against pension fund statistics, company annual reports and other records to ensure accuracy.

Given that the Department of Trade and Industry (dti) is central in the country's formulation of BEE codes, the researchers applied the dti's suggested methodology. Using the calculation method suggested in the dti BEE codes, certain categories of ownership are excluded as the investors are deemed to be neither black nor white. The dti excludes shares held by the State and Treasury shares (2% of all shares in the Top 100 companies in 2011). In addition cross holdings between listed entities (11%) were excluded to avoid double counting. Dti also suggests subtracting shares to the value of foreign operations held by groups with offshore assets (27%).

This year, therefore, only 60% of shares can be acquired by black or white South Africans. This boosts the percentage held by black South Africans. According to the dti method, black South Africans hold 17% of 60%, or 28% of all available shares.

"More black South Africans own shares through mandated investments than through BEE deals," says Chandler. "By number, middle class black South Africans are the main beneficiaries of mandated investment. This is achieved with no gearing - pension funds, life insurance policies and collective investment schemes do not carry debt."

This, says Chris van Wyk of AQRate, means that the market complies with generic codes 2017 targets, in aggregate. "The BEE Codes require 25% black ownership by 2017. Currently black people own at least 28% (using the dti calculation). Moreover, with 32% of total market yet to be analysed, the actual black ownership figure is likely to be higher."

The researchers were cautious about the assumptions that they made during the study. In particular, black economic interest was assumed to be zero when:

• Companies did not participate in study;
• Researchers could not prove that pension schemes had black beneficiaries; or
• Researchers could not prove that black people had life insurance policies or unit trusts.

As encouraging as the data appears, much still needs to be done to achieve an equitable landscape. To this end the JSE has for many years run a number of initiatives to foster improved financial literacy and encourage retail South Africans investors to invest on the exchange:

• The JSE/Liberty Investment Challenge is an annual trading game which the two groups have run for 37 years to educate learners about the workings of the stock market. Teams of learners or university students are given an imaginary sum of R1 000 000 to invest in JSE-listed shares. Their performance is then tracked and measured against other teams taking part in the contest. 
• The JSE reaches out to ordinary South Africans about how to begin investing, and has travelled the country with expos in major cities.
• The JSE's education department is working alongside government to improve financial and investing knowledge amongst learners in Gauteng, Kwazulu Natal and Eastern Cape schools. Aimed at Grade 9 and 10 pupils, the initiative has an emphasis on practical financial knowledge including budgeting, saving, managing a bank account and investment principles. Training for teachers and course material including detailed lesson plans are provided by the JSE.
• The JSE also hosts regular investor showcase events at the exchange that are open to the general public.

Statement issued on behalf of Russell Loubser, CEO, JSE Ltd, October 4 2011

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