If you are an online trader who already has some experience in trading stocks and other financial instruments online, you might find the idea of trading in different countries an attractive one. Many traders look to Asia when thinking of expanding their trading activities and trading in different regions, but another fascinating region for online traders is Africa. Our guide to trading in South Africa will look at the opportunities and challenges, which brokers you can use and other issues such as regulation and which stock market indices to pay attention to. The idea of trading in South Africa is an exciting and challenging way to branch out and try something different, so let’s take a close look at what you need to know before you jump in.
The main stock exchange in South Africa is the Johannesburg Stock Exchange (JSE) which was founded in 1887. It is the largest stock exchange (and the oldest existing one) in Africa. Shares are denominated in the currency of the region, which is the rand, and market regulation is governed under the Financial Markets Act 2012, the JSE Rules and Directives, and the Financial Intelligence Centre Act, 2001. The JSE Market Regulation division is in place to guard against insider trading and other prohibited trading practices, such as market manipulation. The regulating body in the region is the Financial Sector Conduct Authority (FSCA) who are responsible for investigating potential abuses and taking action when necessary. The FSCA is a transparent entity, regularly publishing information on the status of any investigation that it is currently conducting, including any matters referred to it by the JSE Market Regulation division.
The World Federation of Exchanges currently ranks the JSE as the 19th largest in the world. Organisations which are already well-established, but not ready to list on the main JSE, can be listed on the subsidiary AltX exchange. This is where you will find newer, smaller, or emerging companies who need to raise capital and attract investors. The AltX declares itself “a catalyst for growth for small and medium-sized businesses”, and is still fully regulated and carefully controlled. You can find all companies and financial instruments listed on the Johannesburg Stock Exchange at the JSE website, along with further details, and links to company websites. As you would expect, there are a wide variety of organisations, across many different sectors, from Financial Services and Technology to Pharmaceuticals and Health Care.
How to Trade in South Africa
If you’re interested in trading stocks, CFDs, or other financial instruments in South Africa, your first step will generally be finding a suitable online broker. Trading on the stock market in South Africa is possible via various brokers that operate in the region, or offer access to the JSE. When trading in South Africa, or indeed any country other than your country of residence, you have a couple of choices. You can open a trading account with a local broker based in the country you are planning to trade in, or you can open an account with an international broker based in your own country, who provides access to the foreign stock exchange you need to access.
You may want to start by checking if your current brokerage offers access to the JSE. Don’t be surprised if the answer is no. Not all online brokers have access to all stock exchanges, and this in no way reflects negatively on them in any way. If your current broker doesn’t provide access to the JSE, then you’ll need to open a new trading account at a new brokerage. There are a few important considerations when signing up to a new broker. Not all South African brokers will offer accounts to foreign clients, and not all brokers in your country will offer access to trading in South Africa. So even if you find a broker who claims to be a ‘global broker’, you will need to ask the question of them: do you provide access to the JSE? And yes, you may need to actually ask the question. It is surprising how many brokers do not include details of their market access on their websites and promotional material.
Some brokers have access to many international stock exchanges, and others hardly any. As mentioned, this doesn’t reflect badly on the broker as such. It costs money to register at each overseas stock exchange, so some brokers decide to channel that money into providing an excellent but specialised service in their home market, while others choose to register to trade at foreign stock exchanges and provide a broader service to their clients.
You can also look at brokers based in your country, with a South African office. You will need to spend some time on research to find the perfect broker for you. Make sure that they offer access to the JSE, are reputable and well-regulated, and meet all your other needs and requirements for trading online. Some brokers who operate in South Africa are:
There are many others, of course, so take your time and ensure you find the right broker for you. The main consideration is to make sure you only consider fully regulated and authorised brokers. The regulating body in South Africa is the Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB). The FSCA operates independently of the central bank, the South African Reserve Bank (SARB), which also administers a prudential regulator called The Prudential Authority (PA). The PA is responsible for regulating banks, financial cooperatives and some other financial services, but brokers should also be FSCA regulated, to ensure a high level of oversight and security.
International brokers who allow access to the JSE, but who do not actually have an office or business presence in South Africa, may not fall under the authority of the FSCA, but any such broker will, of course, need to be regulated and authorised by appropriate bodies in the jurisdictions where they operate.
After you have found a suitable broker, checked out their regulation and trading offers, and opened an account, you can start trading. As you would expect, there are a wide range of companies and instruments listed on the South African stock exchange. The benchmark index in South Africa is the FTSE/JSE Africa All Share Index, which includes the vast majority of all eligible equities listed on the main JSE. The index includes companies from various sectors, including finance, technology healthcare and real estate. This broad index is broken down into the FTSE/JSE Top 40 Index, comprising the 40 largest companies ranked by investable market value, plus a further Mid Cap Index and Small Cap Index. Don’t forget that smaller or emerging companies may also be listed on the AltX exchange.
Trading Opportunities in South Africa
South Africa has a turbulent history, in many ways, but has, perhaps surprisingly, tended to offer a fairly attractive market for international investors, due to a relatively strong, stable, and long-established banking and finance system. The country has a mature infrastructure and many well-established companies, and benefits from being the home of the largest and oldest stock exchange in Africa.
One thing international traders need to be very aware of, obviously, is the value of South Africa’s national currency, the rand (currency code ZAR), as this will impact trading activities in various ways. The rand is a fairly frequently traded currency, with around US$60 billion a day traded on the South African forex market, and will be a familiar currency to many forex traders. However, when trading stocks and other instruments on the South African stock exchange, the value of the rand will also be important. As is always the case when making deals in currencies other than your own base currency, there are both risks and opportunities involved. Traders may find when the rand is fluctuating, that it’s worth adjusting trading strategies to capitalise on it. The experienced forex trader is naturally tuned in to using currency price movements to make money, but when investing in other financial instruments on foreign exchanges, currency fluctuations can also be used to your advantage.
If you are trading in South Africa, or indeed in any country with a different base currency to your own, you may be exposed to opportunities to use changing currency prices, alongside your other trading strategies, to maximise your trading profits over time. This adds an extra layer of complexity to your trading decisions and is a potentially very complicated issue, so be aware that while it may create opportunities, it will also create challenges, as outlined below.
Trading Challenges in South Africa
There are a few key factors that impact the South African financial markets, and overseas investors should certainly be aware of them before putting a trading strategy in place. The constantly fluctuating prices of key commodities for the region, such as oil and gold, will, of course, have an impact on the markets and the overall health of the economy. In addition, it should be remembered that the country is fairly dependent on exports, with exported goods and services generally accounting for around 30% of South African GDP.
South Africa exports to a range of countries, but in particular to the United States and China, so the South African economy can be vulnerable to trade disputes and other issues that affect trade with these countries. A dependence on exports always makes a country a little more vulnerable to issues such as import tariffs, trade wars and disputes over major international trade agreements. In recent years, South Africa has also experienced a budget deficit and has had to adjust what were clearly over-optimistic growth forecasts.
Then, there is the currency issue. South African stock listings are denominated in ZAR, so for those traders based outside the region, and using a different base currency, there are considerations around exchange rate fluctuations when trading on the JSE. As we have already covered, fluctuating currency rates can be used to advantage in international trading, but can also represent a challenge. Unexpected changes in currency rates can potentially have a negative impact on your trading activities, sometimes reducing or negating profit on what might have initially looked like a successful deal.
The Johannesburg stock exchange, and the FTSE/JSE Indices, can also be impacted by local fundamental issues, and international issues that affect the region, that may be more difficult to monitor (and quickly respond to) if you are an international investor living outside of the region and somewhat removed from the intricacies of the African markets.
A final consideration is that of picking the right broker, especially if you decide to go with a South African broker. Even if your broker is fully regulated by the FSCA and other relevant bodies, occasional disputes can arise, and they are generally harder (or at least more time-consuming) to resolve, when you are dealing with an overseas broker. This can be an issue when operating in any foreign market, of course, and South Africa is a safer bet than many other countries, but it is still something international traders should consider, just in case they need to make an official complaint should arise.
It’s a fascinating and exciting prospect, as an online trader, to start exploring and investing in new markets and opportunities. Trading in South Africa gives you access to many new and interesting opportunities, on a large and well-established stock exchange. As is usually the case with new opportunities, there are also complications and risks to trading in South Africa, including the complexities of working with a currency that is not one of the major global currencies, in a country that relies on a healthy export environment in order for the economy to continue to thrive. However, for many traders, the South African market offers an excellent opportunity to diversify their investment portfolio.