Foreigners forced to dump two more JSE blue chips

Foreign investors are being forced to sell down their holdings in two more ‘SA Inc’ blue chips, following the announcement last week by index provider MSCI that the two equities would be deleted from its South Africa Index at the end of the month.

African Rainbow Minerals (ARM), with a market capitalisation of R37.5 billion, and Growthpoint (GRT), valued at R35 billion, have already seen a jump in trading volumes – and share price weakness – as foreign investors rush to dispose of their holdings.

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The exclusion from the SA Index means these shares will also no longer feature in the MSCI Emerging Markets Index. Any exchange-traded funds (ETFs) or index funds that track these indices will need to sell down their holdings in these shares by the end of November.

The largest impact will come from mega fund, Vanguard Emerging Markets Stock Index Fund, with net assets of $92 billion, equivalent to R1.7 trillion. This is the more than the market capitalisations of FirstRand, Standard Bank, Capitec, Vodacom, MTN, Absa and Nedbank combined!

The far smaller iShares MSCI Emerging Markets ETF, with net assets of over $16 billion, or R300 billion, is still large in rand terms. It is more than twice as large as all domestic ETFs, exchange-traded notes and actively managed certificates together.

Growthpoint

The average volume of trading in Growthpoint shares on the JSE over the past year has been 12 million a day. Since Tuesday’s announcement, this has soared to as much as 42 million.

So far this year, shares in the real estate investment trust are down 29.6%, and further weakness over the next week due to this forced selling is all but guaranteed.

According to the group’s most recent annual report, BlackRock (which owns iShares) held 95 million shares, or 2.78%, at the end of June. Rival Vanguard held 148 million shares (4.31%), with 52 million of these (1.53%) in the Vanguard Emerging Markets Stock Index Fund alone.

Some estimates have put the number of shares that need to be sold at around 200 million, which equates to over R2 billion.

African Rainbow Minerals

African Rainbow Minerals is more tightly held than Growthpoint (related parties own more than 53% of its equity, with the Public Investment Corporation and Allan Gray accounting for a further 11%).

In its latest annual report, it says there are no US-based investment companies that hold more than 3% of its stock. That said, US and Canada-based shareholders comprise 12.6% of its investor base. Following this move, that number will likely decline to under 10%. It will also see a multi-billion-rand outflow.

Trading volumes in ARM are more muted (typically around 800 000 a day). In the past few days, this has been more than double.

ARM shares are down 42% so far in 2023, among the five worst-performing midcaps on the market.

Not the first two to go …

The deletion of Growthpoint and ARM this month follows the removal of MultiChoice Group, Mr Price Group and TFG Limited in August.

This resulted in significant declines in the share prices of all three, with only Mr Price Group and TFG rebounding.

This will bring the total number of deletions of South African shares this year to five and illustrates the fading significance of the JSE globally.

The country’s weighting in the MSCI Emerging Markets Index will be further reduced from 1 December. India sees nine additions from the end of the month and Brazil one. Mexico has two additions and one deletion. China has a net zero additions (19 adds, 19 removals).

It says the “three largest additions to the MSCI Emerging Markets Index measured by full company market capitalization will be Tata Motors A (India), Amman Mineral International Tbk PT (Indonesia) and CGN Power Co A (Hk-C) (China).

So far this year, non-South African investors have been net sellers of R110.7 billion in shares on the JSE. At the same point in 2022, this figure was R65.6 billion.

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