The Johannesburg Stock Exchange will be introducing three new indices to replace the current South African property index (Sapy) within the next three to four months. This is as a result of the general view that it no longer represented the local property sector accurately.
The Sapy was launched 14 years ago at a time when property still formed a small portion of the JSE’s overall market cap. Conversely, 1the duration since 2003 has since seen the sector expand to $38.5Bn from not being widely covered by investment.
The JSE’s proposal released at the end of 2016 suggests the SA Reit Index; the Tradable Property Index; and the All Property Index replace the Sapy. The SA Reit index is to include only JSE listed companies under South African-based real estate investment trusts, or Reits. This is comparable to the current Sapy but with exclusion on all dual listed offshore companies.
The Tradable Property Index would likely include the 13 most liquid property companies on the JSE regardless of where the primary listing is. The third proposed index, the All Property Index will include all property companies in the All Share Index, including both foreign and local property companies, Reits and developers.
The foreign companies will be included based on ShareholderWeightedIndices(SWIX).
Mark Randall, the manager of indices and valuations at the JSE, said the JSE has now concluded its process of market consultation. “Once we have considered the feedback, we will incorporate that into our changes and announce the final implementation date.”
Sesfikile Capital, an investment management firm is optimistic about JSE’s move to realign the Sapy and make the index more relevant. The director, Mohamed Kalla, foresees initial changes in the Sapy being likely to trigger material changes across many fund managers’ portfolios as their target may be adjusted and as a result creating short-term trading opportunities.
“However, the real opportunity is more strategic and long term in nature as the greater liquidity and more efficient stock allocation should enhance the quality of investment portfolios in light of risk and return.”
He believes the third index to be most appropriate to replace the Sapy, terming it an attractive yielding index with a strong South African bias but limited and homogeneous with little opportunity for adequate diversification.
Similarly, Kalla says while the Tradable Property Index could push companies to chase size and liquidity at the expense of earnings.