Active trade in big-cap mining group shares came to the rescue of the JSE Security Exchange's turnover in 2001. Trade in mining shares leapt 70% to R126bn, mitigating a 27% fall to R392bn in the value of financial and industrial shares traded, which would have ended five years of strong JSE turnover growth.
The end result was a 13% increase in total turnover to R606bn. This was well below 20%, 40% and 55% increases registered in the previous three years, indicating that marketability improvements that followed the adoption of electronic trading in 1996 could be tapering off. This is also indicated by turnover relative to total market capitalisation, which increased modestly to 38,5% from 35,1% in 2000 and 34,6% in 1999.
Highlighting the mining sector's importance last year, the combined R154m turnover of Anglo American, Anglo Platinum, AngloGold, BHP Billiton and Impala Platinum accounted for 25% of total JSE turnover. Notably, the R33bn trade in Richemont, the most marketable industrial share, was just over half of top-traded Anglo American's R65bn.
Iscor was the most marketable share in terms of turnover of issued shares. This method, termed volume density, is used by McGregor BFA to calculate trading activity reflected in the accompanying tables.
A 519% turnover of Iscor's issued shares was equivalent to trading almost 10% of the issued capital every week and exceeded the previous record of 363% set by IT group Hicor in 1999.
Exceptionally high volume densities are often associated with intense speculation or anticipation of corporate action. This was a big factor in Iscor's case, and exchange rate volatility added speculative momentum.
Corporate action in the form of unbundling Johnnic's 34% stake in M-Cell to Johncom in mid-2001 also played a key role in the latter's unusually high 126% trading density. This has subsided to about 40%. Fedsure's break-up, with most assets passing to Investec, drove its volume density to 478% from 59% in 2000.
But a pattern of consistently high trading densities is evident in a number of shares. Some of the top 50 over three years are Comparex (82% average), Sappi (78%), FrontRange (76%), Softline (75%), Didata (72%) and Metcash (62%). Over two years they were joined by Foschini (61%) and BoE (55%).
Other consistently high-density traders over three years are MGX (55% average), M&R Holdings (49%), Sasol (47%), Tiger Brands (47%) and SA Breweries (39%).
Not surprisingly, many resources counters moved up the volume density ranks in 2001, among them Impala Platinum, up from 66th position to 22nd, and Harmony, up from 61st to 24th.
A feature of most shares with high volume density is above-average share price volatility. In the high consistency group over three years, for example, average price volatility ranged from Sappi's 14,5%/month to FrontRange's 37%/month. All were well above the All Share index's 6%/month average volatility and the Industrial index's 6,2%/month.
Rising volume density is generally accompanied by rising volatility. Impala Platinum's volatility, for example, increased from a 14,3%/month three-year average to 18,5%/month in 2001. Impala's increased volume density also reflects increasing domination of SA's mining and resources sectors by offshore investors. Between 1998 and 2001, net foreign purchases of SA equity totalled R130bn, reducing domestic holdings of the largest mining houses, Anglo American and BHP Billiton, to 30% and 10% respectively. SA holdings of other groups such as Harmony and Sappi have declined to about 30%.
Foreign holdings of the top 10 resources shares represent about 60% of their total (weighted) market capitalisation. In turn, these shares represent about 90% of the resources sector's market capitalisation. Clearly, JSE data does not provide the true turnover and volume density levels of most mining sector counters.
Anglo American's turnover on the London Stock Exchange (LSE), where it has its primary listing, is about £1,2bn/month with around 100m shares/month traded. Combined with JSE turnover these would boost Anglo's total turnover by around 350% to R290bn/year and volume density of 35% reflected in the tables to 85%.
Similarly, when BHP Billiton's LSE trade is included, volume density increases from the 29% traded on the JSE to 175%.
These are not exceptional by world market standards and in terms of volume density the JSE has a long way to go. The New York Stock Exchange (NYSE), for example, achieved a 93,7% total volume density in 2001, a level exceeded by only eight JSE counters in 2001 and 10 in 2000.
Also of concern, 63% of JSE shares have volume densities of under 20% and 44% below 10%. The JSE's 38,5% liquidity also lags way behind the 136% and 85% achieved by the LSE and NYSE respectively in 2001. Problems faced in increasing JSE trading volumes include an absence of offshore investors in SA financial and industrial shares and reluctance by domestic institutions to trade and invest in mid- and small-cap stocks.