Question

explain in details advantages and disadvantages of investing in the JSE

Answer 1

JSE - Johannesburg Stock Exchange is the largest stock exchange in Africa founded in 1887. Its Market cap is :- US$ 1,105 billion & No. of listed companies :- 388 (as of May 2018). The Johannesburg Stock Exchange (JSE) is one of the most sophisticated exchanges in the world where the investors can trade in shares easily with the help of internet services. The accessibility and convenience make it an ideal place for new Africa investors. The JSE stock brokers offer both Discretionary & Non-Discretionary Accounts. Discretionary accounts give brokers the authority to make trades in the investor's account without the consent of the account holder. They typically are managed in a way that the broker believes is the best way to achieve the investment objectives and acceptable levels of risk that the investor specifies. However, in non-discretionary accounts the investor does the trading on his own & takes his own investment decisions. The first step of investing in the JSE is to get a basic understanding of what the JSE is all about. Then the investor might contact a JSE-registered stockbroker to guide and help him/her to identify investment options that suits the investor's  financial goals. A JSE stockbroker can help the investor to understand investment risks and benefits and thus accordingly make investment decisions.

The fundamental role of the stock exchange is to bring together in one market place providers of capital and organisations that require capital. The JSE undertakes this role in South Africa and hence, acts as a hub at the centre of the South African economy. Providers of capital earn a return on their investments through dividends and capital growth, thereby increasing the overall wealth of the nation, while the organisations in which they invest provide jobs and drive the economic development of the country. The Africa’s oldest stock exchange - JSE has been listing companies, trusts and other products for more than 115 years. The Johannesburg Stock Exchange (JSE) provides valuable long-term investment options to all South Africans.

Advantages of investing in the JSE :-

1. JSE connects buyers and sellers in equity, derivative and debt markets. The JSE is one of the top 20 exchanges in the world in terms of market capitalisation and is a member of the World Federation of Exchanges (WFE). The JSE offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management.

2. International investing - JSE provides the foreign investors the benefits of international investing. Two advantages of international investing are :-
   Advantage 1: Diversification
   International investing offers diversification. By investing in different countries, the investor can lower overall investment risk. For example, if the European economy takes a turn for the worst which in turn hits EU stocks, the international investments will offset this fall.
   Advantage 2: Wider choice
   The Johannesburg Stock Exchange is small in comparison to many of the world’s stock exchanges. It is also quite heavy in commodity-based companies. By investing in international markets, the investor can broaden the choice of available stocks to invest in.
   For example, one could invest in utilities. Utilities are companies that provide services such as electricity and water. They tend to do well regardless of what the economy is going through and can protect the portfolio from investment risks.
   There are three ways to invest on the JSE for investors from outside South Africa: through the investor's local stockbroker, through his/her bank or through a South African stockbroker.

3. JSE shares have shown the highest returns in the long term, outperforming other assets such as bank deposits and real estate property. Investing in shares gives an investor a good chance of beating inflation. South Africa’s inflation target is between 3 and 6%. Hence, to make a profit on the JSE, the return on investment should, therefore, be greater than 6%. Research indicates that the return on shares on the JSE has in most cases exceeded this percentage for the last hundred years. The value of shares would, in the long-term, often increase. Some of the listed companies also pay dividends. When an investor buys shares of different companies, he/she is diversifying his/her portfolio & thus limiting losses.

4. The JSE offers the other following advantages of investing in a stock exchage :-
   The inflation rate is higher than the interest rate paid by commercial banks but lower than equity price appreciation.
   The investor can sheild his income from the investments. In other investments, people can easily look at the assets of the business or property (real estate) and come up with approximate worth.
   The rate of growth in the stock excange is far beyond the bank interest rate.
5. It’s convenient - Many South African stockbrokers offer intuitive online trading platforms. They’re easy to use and allow to buy and sell shares with a click of a mouse.
6. A wide variety of index funds and ETFs make it easy to diversify her portfolio quickly and cheaply.
7. World-class standard financial reporting requirements of the JSE gives an investor excellent transparency into the financial status of each listed company, giving the information an investor needs to pick the actual worthy shares.
8. If an ivestor can chose & buy good company shares at fair prices, he/she can expect the value of his/her shares to grow over time.
9. Many listed companies even pay dividends to their shareholders once or twice per year.
10. Investing on the JSE is very easy. The investor can control his/her investment risks and don't need really a lot of money to start out.
11. The minimum amountof investment varies depending on the share or asset class. For some Exchange Traded Funds (ETFs), the minimum is R300 a month or a one-off amount of R1000.
12. Some of the JSE’s top blue chip stocks are like  Sasol, Anglo American and MTN Group, and BHP Billiton.

Disadvantages of investing in the JSE :-

1. For international investors in the JSE, there are disadvantages also which apply in general to all the cases of international investing.
   Two disadvantages of international investing are like ;-
   Disadvantage 1: Currency risk
   There are currency risks from international investing. This is because the value of currencies fluctuate up and down. This means the value of the investments can also fluctuate up and down due to this.
   Hence, this currency risk can work against an investor.
   Disadvantage 2: Country-specific risks
   There are risks that a country the investor invests in, experiences economic or political problems.

2. JSE seems to be on a downward spiral for sometime now. ABSA has sent out a notificationsometime back that it is delisting 5 of it local ETF’s due to lack of investor interest. Deutsche Bank also delisted the 3 ETN’s they have listed on the JSE. Transformation seems to have a very adverse effect on the JSE.

3. US markets have significantly outperformed the Johannesburg Stock Exchange (JSE) over the last few years due to South Africa's underperforming economy.