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Presentation to CCA Conference on An Overview of African Capital Markets New York City, 26 February 2004 Colin Coleman Man...
Overview of African Capital Markets 215.8 257.2 28.1 14.5 16.3 (a) (a) <ul><li>Other:  Swaziland, Namibia, Malawi, Cote d’...
<ul><li>Taiwan 22.6 551.4 310.6 1,375.9 </li></ul><ul><li>China 1305.6 7325.0 306.4 211.6 </li></ul><ul><li>Korea 47.9 843...
Emerging Markets Fund Assets by Geography <ul><ul><li>In competing for the largest pool of investible capital, South Afric...
South Africa: a Large and Concentrated Corporate Sector Top Companies by Market Capitalisation and Sector <ul><li>Not list...
Analysing Country Risk Comparative Default Swap Levels – 2003 South African CDS levels have undergone recent tightening, w...
Foreign Investor Performance Differs from Local Investor Performance <ul><li>As at Dec-2003. </li></ul><ul><li>Source:  Da...
Currency Fluctuations are a Key Driver of Returns for Foreign Investors <ul><li>Goldman Sachs Research estimate of long-te...
Emerging Markets Funds Flow  Emerging Markets Growth Fund US 17,950 843 4.7% GMO Emerging Markets Fund US 3,219 342 10.6 T...
<ul><li>1 STANLIB 2,625 84% 502 16% </li></ul><ul><li>2 Sanlam Investment Management 2,503 79% 677 21% </li></ul><ul><li>3...
Emerging Markets Financing Environment Emerging Market Trading Flows (AMG Data) The Emerging Market continues to enjoy str...
Longer Term Perspective on Emerging Market Performance Relative Emerging Market Indices: 1995 to Present 461.7 485.7 185.6...
Largest South African Companies’ Listings  15 Largest by Market Cap from JSE Top 40 Tradeable Index 1 Anglo American   33....
Valuation Differences Rolling 12 Month Forward P/E Multiples Source:  Datastream Overall Valuation Differences Missing Val...
<ul><li>Market Cap$ 216 bn $11,328 bn (a) $2,426 bn (b) </li></ul><ul><li>Number of Companies   162   2,055 697 </li></ul>...
The Index Issue <ul><ul><li>The South African market is small in a global context </li></ul></ul><ul><ul><li>Very little a...
Benchmarking  First Rand 6.9 7 Standard Bank Group 8.1 8 Commerzbank 12.2 ADR (OTC) 31 SAB Miller 9.8 PLC, ADR (OTC) 8 Sco...
Increasing Investor Reach  <ul><ul><li>Goal is to appear in more investors’ “investible universe” </li></ul></ul><ul><ul><...
Exchange Control Regulatory Changes – for South African Companies  Pursuant to February 2004 Budget Review <ul><ul><li>No ...
Exchange Control Regulatory Changes – for International Investors/Companies  Pursuant to February 2004 Budget Review <ul><...
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  1. 1. Presentation to CCA Conference on An Overview of African Capital Markets New York City, 26 February 2004 Colin Coleman Managing Director Goldman Sachs International
  2. 2. Overview of African Capital Markets 215.8 257.2 28.1 14.5 16.3 (a) (a) <ul><li>Other: Swaziland, Namibia, Malawi, Cote d’Ivoire, and Tunisia. </li></ul>Market Capitalisation ( US$ bn) Average Daily Trading Volume (US$m)
  3. 3. <ul><li>Taiwan 22.6 551.4 310.6 1,375.9 </li></ul><ul><li>China 1305.6 7325.0 306.4 211.6 </li></ul><ul><li>Korea 47.9 843.3 293.4 1,511.3 </li></ul><ul><li>Brazil 176.5 1,363.3 231.9 191.9 </li></ul><ul><li>South Africa 44.3 455.4 215.8 257.2 </li></ul><ul><li>Russia 144.4 1252.4 212.5 50.0 </li></ul><ul><li>Mexico 104.8 607.7 103.9 32.3 </li></ul>Africa in an Emerging Market Perspective Comparative Market Overview Data as of 30 January 2003. Population GDP Market Cap. ADTV (m) ($bn) ($bn) ($m)
  4. 4. Emerging Markets Fund Assets by Geography <ul><ul><li>In competing for the largest pool of investible capital, South African companies are competing primarily with Asian and South American companies </li></ul></ul><ul><ul><li>During the last year, the Korean Won and the Taiwan Dollar has strengthened by 2% vs. the US dollar, the Brazilian Real 21% and the South African Rand 29% vs. USD </li></ul></ul><ul><li>As at December 2003. </li></ul>1 Samsung 6.18% 2 Anglo American 3.64% 3 Taiwan Semiconductors 1.88% 4 China Mobile China Tele 1.86% 5 Teva Pharmaceutical Ind 1.70% 6 Telefonos Mexico 1.49% 7 Lukoil Holding (USD) 1.36% 8 Kookmin Bank 1.35% 9 America Movil 1.27% 10 Petrobras 1.23% 11 Posco 1.12% 12 Sasol 1.01% 13 Petrobras 0.98% 14 United Microelectronics 0.88% 15 Surgutneftegaz Comn (USD) 0.87% 16 Petrochina 0.81% 17 SK Telecom 0.81% 18 Standard Bank Group 0.81% 19 Vale Do Rio Doce Pna 0.79% 20 Hyundai Motor 0.79% Total 30.25% Korea 18.9% South Africa 13.6% Taiwan 13.4% Mexico 7.9% Brazil 7.7% China 7.0% Malaysia 6.0% Russia 4.9% India 4.9% E. Europe 3.1% Other 12.6% Asia 54.0% South America 18.7% Africa 14.2% E. Europe (incl. Russia) 8.0% Middle East 5.1% Assets by Country and Region Highest Weightings in MSCI Emerging Markets Index (a) Breakdown by Country Rank Security Name Weight Breakdown by Region
  5. 5. South Africa: a Large and Concentrated Corporate Sector Top Companies by Market Capitalisation and Sector <ul><li>Not listed, GS estimate. </li></ul><ul><li>Source: Infocentre (excludes Lonmin $2.9bn and Xstrata $7.6bn) </li></ul><ul><li>Note: As of January 2004 (7.01 ZAR/US$) </li></ul>Natural Resources Financial Services CMT Other Total Top 20 Companies 186.2 Total Market Capitalisation of JSE 215.8 % of total 86%
  6. 6. Analysing Country Risk Comparative Default Swap Levels – 2003 South African CDS levels have undergone recent tightening, which is in line with higher rated sovereign credits Russia (BB) Mexico (BBB-) South Africa (BBB) South Korea (A-) Qatar (A-) Poland (BBB+)
  7. 7. Foreign Investor Performance Differs from Local Investor Performance <ul><li>As at Dec-2003. </li></ul><ul><li>Source: Datastream </li></ul>106% 39% 38% 19% 8% 6% 165% 27% 43% 19% 31% 50% <ul><ul><li>South African Investments have performed well from an international (USD based) perspective over the last year </li></ul></ul><ul><ul><ul><li>29% appreciation of ZAR vs. USD </li></ul></ul></ul><ul><ul><ul><li>Investment decisions only driven by company specific issues to a certain extent, however macro issues are also very important from an international investor perspective </li></ul></ul></ul>12M Index Performance (Local Currency) (a) 12M Index Performance (USD Rebased) (a)
  8. 8. Currency Fluctuations are a Key Driver of Returns for Foreign Investors <ul><li>Goldman Sachs Research estimate of long-term over/under valuation of exchange rates. </li></ul><ul><li>Source: Datastream, GS Research </li></ul><ul><ul><li>The Rand has shown substantial strength over the last year due to interest rate differentials and reversal of previous weakness </li></ul></ul><ul><ul><li>GS Research believe that the Rand is currently slightly overvalued but expect further strength in the short-term on the back of weak US$ </li></ul></ul>Dec-1998 to Dec-2001 Dollar appreciates by 112% vs. Rand (rate Dec-2001: 14.44) Dec-2001 to Dec-2003 Dollar depreciates by 46% vs. Rand (rate Dec-2003: 6.42) ZAR strength ZAR vs. USD The Rand is Slightly Overvalued Currently (a)
  9. 9. Emerging Markets Funds Flow Emerging Markets Growth Fund US 17,950 843 4.7% GMO Emerging Markets Fund US 3,219 342 10.6 Templeton Developing Markets Trust US 2,049 109 5.3 Templeton Instl. Funds Emerging Mkts. Series US 1,719 91 5.3 Vanguard Emerging Markets Stock Index Fund US 1,260 127 10.1 Batterymarch Global Emerging Markets Fund Luxembourg 1,111 77 7.0 UBS Equity Fund Switzerland 1,045 86 8.3 SEI Institutional International US 935 90 9.6 ABN AMRO Funds Global Emerging Markets Equity Fund Luxembourg 919 54 5.9 Schroder Emerging Markets Fund UK 914 73 8.0% Source: Carson/Thomson Financial <ul><ul><li>As in most times of volatile or declining equity markets, emerging market funds have been experiencing net outflows as a result of increased investor risk aversion </li></ul></ul><ul><ul><li>Investor selectivity is increasing and only funds that invest in widely believed growth stories experience inflows </li></ul></ul> Equity Assets AUM in South Africa % of Fund Name Country ($m) ($m) Total 10 Largest Emerging Market Funds Globally
  10. 10. <ul><li>1 STANLIB 2,625 84% 502 16% </li></ul><ul><li>2 Sanlam Investment Management 2,503 79% 677 21% </li></ul><ul><li>3 Old Mutual Asset Managers 1,602 79% 419 21% </li></ul><ul><li>4 RMB AM 1,179 84% 227 16% </li></ul><ul><li>5 Allan Gray 825 92% 69 8% </li></ul><ul><li>6 Investec Asset Management 621 72% 246 28% </li></ul><ul><li>7 Standard Bank of South Africa 543 100% 0 0% </li></ul><ul><li>8 Coronation Fund Managers 451 76% 141 24% </li></ul><ul><li>9 FNT Investec Unit Trusts 393 100% 2 0% </li></ul><ul><li>10 Templeton Asset Management 366 95% 18 5% </li></ul><ul><li>11 Marriott Asset Management 346 100% 1 0% </li></ul><ul><li>12 ASA 327 72% 129 28% </li></ul><ul><li>13 Quaystone 310 78% 88 22% </li></ul><ul><li>14 African Harvest Fund Managers 257 85% 46 15% </li></ul><ul><li>15 Sage Life – Managed Pension 153 100% 0 0% </li></ul><ul><li>16 PeregrineQuant 133 66% 68 34% </li></ul><ul><li>17 Oasis Asset Management 98 88% 13 12% </li></ul><ul><li>18 Metropolitan Asset Managers 80 68% 38 32% </li></ul><ul><li>19 Absa Asset Management 77 52% 71 48% </li></ul><ul><li>20 ABSA Share Incentive Trust 73 100% 0 0% </li></ul><ul><li>Median 356 84% 69 16% </li></ul><ul><li>Average 648 84% 138 17% </li></ul>Overview of Top South African Investors <ul><li>As at Dec-2003. </li></ul><ul><li>Source: Carson </li></ul><ul><ul><li>Majority of investors in South Africa are heavily weighted in South African equity, largely due to exchange controls </li></ul></ul>Rank Institution $m % of Total $m % of Total South African Equity (a) Non-South African Equity
  11. 11. Emerging Markets Financing Environment Emerging Market Trading Flows (AMG Data) The Emerging Market continues to enjoy strong technical support with increasing investor demand Total Quarterly Issuance (2001 – 2003YTD) Primary Market by Region (2001
  12. 12. Longer Term Perspective on Emerging Market Performance Relative Emerging Market Indices: 1995 to Present 461.7 485.7 185.6 Source: Factset As at Dec-2003  Since Jan-1996  Since Jan-1999  Since Jan-2003 389.5 332.5 229.5 96.7 (36.8) 39.3 88.0 (99.7) 12.0 22.5 (49.0) 14.3 (9.3) 21.9 15.6
  13. 13. Largest South African Companies’ Listings 15 Largest by Market Cap from JSE Top 40 Tradeable Index 1 Anglo American 33.2 Yes OTC   LSE 2 Billiton plc 20.1 Yes Yes Australia ASE 3 Financiere Richemont 14.5 OTC Swiss SWX 4 Anglo American Platinum 10.4       JSE 5 Sasol 9.9 Yes   JSE 6 SABMiller 9.8 Yes OTC   LSE 7 AngloGold 9.0   Yes   JSE 8 Old Mutual 6.4       JSE 9 Standard Bank Group 5.3       JSE 10 Remgro 5.1 Yes     LSE 11 FirstRand 4.8   Yes   JSE 12 ABSA 4.0     JSE 13 Harmony 4.0 Yes JSE 14 Gold Fields 3.8   OTC   JSE 15 Impala Platinum 3.0   Yes   JSE <ul><ul><li>A significant portion of the largest South African companies have already pursued listings abroad </li></ul></ul>Rank Company Market Cap ($bn) PLC? ADR? Other Primary
  14. 14. Valuation Differences Rolling 12 Month Forward P/E Multiples Source: Datastream Overall Valuation Differences Missing Valuation Differences <ul><ul><li>US and European markets are trading at substantially higher valuation multiples </li></ul></ul><ul><ul><li>Even within the mining industry, South African companies seem to trade at a discount to US peers </li></ul></ul>
  15. 15. <ul><li>Market Cap$ 216 bn $11,328 bn (a) $2,426 bn (b) </li></ul><ul><li>Number of Companies 162 2,055 697 </li></ul><ul><li>Avg. Market Cap. $1.0 bn $6.2 bn $2.6 bn </li></ul><ul><li>2003 ADTV (Market) $0.3 bn $36 bn $19 bn </li></ul><ul><li>Div. Yield 4.6 % 2.5 % 3.9 % </li></ul>Overview of Markets <ul><li>NYSE All-Share. </li></ul><ul><li>FTSE All-Share. </li></ul><ul><ul><li>The JSE is small and relatively illiquid in international terms </li></ul></ul>Market JSE NYSE LSE
  16. 16. The Index Issue <ul><ul><li>The South African market is small in a global context </li></ul></ul><ul><ul><li>Very little assets are tracking indices where South African companies can be included </li></ul></ul>Note: Highlighting denotes possible inclusion of South African companies. Europe – Regional FTSE All Share 165 9.39 MSCI UK 28 2.01 DAX 14 3.23 CAC 40* 9 1.26 Europe MSCI Europe ex UK 41 1.95 Euro STOXX 50* 28 1.81 FT Europe ex UK** 19 0.82 STOXX50* 8 0.30 USA S&P 500 770 7.48 S&P SMALLCAP 13 3.69 S&P MIDCAP 24 2.96 RUSSELL 2000 21 2.77 RUSSELL 3000 185 1.65 Global MSCI EAFE 165 3.25 FTSE Pacific 20 1.01 MSCI Kokusai 50 0.35 MSCI World 15 0.13 MSCI World ex Australia 15 0.13 1. USA 14,173.0 55.23 2. Japan 2,953.1 11.51 3. United Kingdom 2,425.8 9.44 4. Euronext 2,076.4 8.09 5. Germany 1,079.0 4.20 … 9. Hong Kong 662.3 2.58 12. Taiwan 310.6 1.21 13. China 306.4 1.19 19. Brazil 231.1 0.90 20. South Africa 215.8 0.84 Total 23,030.9 100.00 MSCI World Index Weights Passive Index Tracking % Passively Held Est. Passive Tracking ($bn) Index Weight (%) Market Cap ($bn) Country
  17. 17. Benchmarking First Rand 6.9 7 Standard Bank Group 8.1 8 Commerzbank 12.2 ADR (OTC) 31 SAB Miller 9.8 PLC, ADR (OTC) 8 Scottish & Newcastle 7.1 12 Telekom SA 5.9 ADR 8 Telekom Austria 7.5 ADR 15 Hellenic Telecom (OTE) 8.2 ADR 15 Sasol 9.9 ADR 9 Norsk Hydro 18.2 ADR 26 Amerada Hess 5.5 16 Liberty Group 2.1 ADR (OTC) 7 Friends Provident 4.8 8 Skandia 4.9 10 <ul><ul><li>Similar companies abroad tend to have a higher research following </li></ul></ul><ul><ul><li>Smaller difference for South African companies with ADR listings </li></ul></ul>Source: Infocentre (Jan-2004) Market Additional No. of Company Cap ($bn) Listing(s) Research Analysts
  18. 18. Increasing Investor Reach <ul><ul><li>Goal is to appear in more investors’ “investible universe” </li></ul></ul><ul><ul><li>Leads to more diversified investor base, and increased demand tension </li></ul></ul><ul><li>Pursuing additional listings allows and facilitates for foreign investors to invest in South African companies </li></ul><ul><ul><li>Average size of top 100 South African investors is $104m compared to $48.6bn for US and $10.0bn for UK investors </li></ul></ul><ul><ul><li>Median size of top 100 South African investors is $12m compared to $27.9bn for US and $4.5bn for UK investors </li></ul></ul><ul><ul><li>Furthermore, there are approximately 20 investors in South Africa with over $100m in AuM, compared to 1,752 in the US and 341 in the UK </li></ul></ul><ul><li>Even if majority of liquidity might remain in home market, foreign listing improves international capital markets profile </li></ul><ul><li>“ Stamp of approval” if complying with more stringent reporting requirements </li></ul><ul><li>Possibility of increased trading hours per day </li></ul>Source: TF/Carson
  19. 19. Exchange Control Regulatory Changes – for South African Companies Pursuant to February 2004 Budget Review <ul><ul><li>No changes were announced to existing system whereby retirement funds and investment managers are permitted to hold only 15% of total assets in foreign investments, and unit trust 20%. However a task team is set to review these limits </li></ul></ul><ul><ul><li>South African companies remain able to use local cash leverage reserves to buy foreign assets for up to R1bn outside Africa and up to R2bn in Africa </li></ul></ul><ul><ul><li>In addition to the above they are now permitted to finance up to 20% (formerly 10%) of the excess cost of approved foreign direct investments from South African funds </li></ul></ul><ul><ul><li>Permissable repayment of offshore capital commitments will be measured to the greater of R1bn ( or R2bn in case of and African Investment) or 20% of total outstanding commitment in any given year </li></ul></ul><ul><ul><li>Most fund mangers in South Africa have long ago approached these limits: </li></ul></ul><ul><ul><ul><li>Limiting ability to take up additional foreign paper as a result of M&A activity </li></ul></ul></ul><ul><ul><li>Restrictions on use of domestic cash/funds remain </li></ul></ul><ul><ul><li>Slight relaxation of use of domestic cash/funds but still leaving large need for foreign raised funds for larger acquisitions </li></ul></ul><ul><ul><li>Dual/Secondary/ADR listings important means to raise off shore capital </li></ul></ul>Proposed Change Net Impact
  20. 20. Exchange Control Regulatory Changes – for International Investors/Companies Pursuant to February 2004 Budget Review <ul><ul><li>Foreign companies can now be admitted to list on the Johannesburg Stock Exchange allowing them to raise domestic equity and debt capital and to use stock in acquisitions </li></ul></ul><ul><ul><li>Local borrowings of majority (>75%) foreign owned entities has increased from 100% to 300% of their total shareholder investment (equity or shareholder loans from abroad) </li></ul></ul><ul><ul><li>Inward listing by African companies, institutions and government should be encouraged through special allowance for institutional investors to invest up to an additional 5% of their total retail assets in African Securities listed on the JSE </li></ul></ul><ul><ul><li>Ability to raise up to 75% of total consideration locally through debt finance significantly reduces currency risk of South Africa investments and provides flexibility in acquisition consideration mix </li></ul></ul><ul><ul><li>Ability to list locally further facilitates using highly rated international paper to make local acquisitions </li></ul></ul><ul><ul><li>Clarity needed on extent of local fund managers ability to hold locally listed foreign stocks . </li></ul></ul>Proposed Change Net Impact

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