The Johannesburg Stock Exchange, Africa’s biggest and most liquid stock market, is seeking more participation from Chinese investors.

China is already South Africa’s biggest trading partner. The exchange, which had net foreign inflows of 13.4 billion rand (US$1.14 billion) last year, wants to forge closer ties with China.

The Asian region now accounts for between 5 percent and 10 percent of trading activity on the exchange, but Chinese participation is still just a drop in the bucket, according to the exchange.

“A lack of education is the main reason why Chinese investors want to do research before they make investment decisions,” said Nicola Comninos, head of equity market business development at the Johannesburg exchange, citing feedback from investors.

Comninos is responsible for driving growth of equity and equity derivatives at the exchange by designing new products and soliciting new business. She is also responsible for delivery of JSE Business Intelligence.

During a recent visit to Shanghai, Comninos sat down with Shanghai Daily and talked about potential cooperation between the stock exchanges of the two cities.

Q: What opportunities do you see in the Chinese market?

A: It’s important for us to get both and international investment flows. Traditionally, the bulk of investment we receive has been from Europe and the US. We are seeing more from the Asian region, predominately from Hong Kong and Singapore. The whole Asian region accounts for about 5-10 percent of our trading activity, but it has been growing significantly in the last five to seven years.

Chinese delegations from Beijing and Shanghai have visited South Africa and the Johannesburg Stock Exchange in collaboration with some of our securities firms. They have expressed interest in researching the performance of our market.

Q: You’re here to meet with Chinese investors, stock dealers, investment bankers and fund managers. What have you learned from this visit?

A: One of the things I found quite interesting is the China-Africa Development Fund. Of the US$4 billion it has invested in Africa, US$3 billion came to South Africa. It has a lot of projects there. The one thing we have observed on this trip is interest in taking some of those projects public and listing them possibly on the Johannesburg exchange.

There has also been interest expressed by other institutions such as CITIC Securities and Standard Bank, a South African bank that has operations in China. They are talking to Chinese companies about the opportunities of listing in Johannesburg because there is such a long waiting list to go public on the Shanghai and Shenzhen stock exchanges. South Africa is a good option because many Chinese companies are doing businesses there.

Q: Are there currently Chinese companies listed in Johannesburg?

A: No. So we’re actively seeking to get some of them to list there this year or next. A lot of investment flows from China to Africa have involved direct investment, such as Chinese companies buying stakes in African companies. Now some of them are reaching the level of maturity where they may need an exit strategy. Such private equity deals can be listed on the stock exchange.

Q: During this visit, did you meet with officials from the Shanghai Stock Exchange? Are there any linkages being considered?

A: Yes. We jointly hosted the Africa-China conference two years ago and brought together delegations from each other’s markets. We hope to do the same at the end of this year here in Shanghai. At this stage, it’s about sharing contacts and networking. We’ve been sharing our contacts of fund managers in South Africa so they can start having initial discussions.

I think the next step for us would probably be to explore if we can do anything through the Shanghai-Hong Kong Stock Connect. Derivatives based on the JSE Top-40 index have already been listed on the Hong Kong stock exchange. The stock link now is available only for top shares. As it’s expanded, it could include derivatives. That would allow mainland investors exposure to JSE’s top 40 shares.

Q: What are the advantages of South Africa’s stock market compared with other emerging markets?

A: In the Global Competitiveness Report issued by the World Economic Forum, South Africa ranked first in stock market regulation. We have a very well-developed financial sector and a liquid market. We also ranked No. 1 for auditing and accounting standards. That really creates an environment similar to developed markets. We also have one of the top trading technologies in the world.

We’re still an emerging market, which gives investors the same return opportunities as other emerging markets. Our annualized return for the last 10 years has been 28 percent. That means high returns in a very safe, well-regulated market.

It’s also worth noting that South Africa has a lot of businesses that have been operating in Africa for a long time. Many companies in banking, mobile telecommunications and retail operate everywhere on the continent. So we offer exposures to frontier markets as well as emerging markets in a developed market framework. It’s an interesting balance.

Q: South Africa’s economy is slowing. Will that be a concern for investors?

A: GDP growth in South Africa has been slowing — to 2 percent, which is below the 3 percent target.

But I don’t think it’s a major concern. Our stock exchange has companies with worldwide operations, and the growth of the South African economy by itself is not necessarily a good indicator of the possible growth in the stock market as a whole.

Some of the biggest companies listed on our exchange started out as purely South African companies, but many have moved their head offices to London and become big multinationals. Investing in them gives exposure to a wide variety of growth opportunities.

There is one interesting example. The top traded share last year on the JSE was Naspers Ltd. It’s a South African media company with a 34 percent stake in Chinese online company Tencent Holdings. Another interesting case is Standard Bank, which operates in China and has a strategic relationship with Industrial and Commercial Bank of China.

Q: What do you think are the risks to investing in South Africa financial markets, especially for Chinese investors?

A: I think it’s probably similar to the risks in all emerging markets. You have to consider the political environment, for one thing.

Another factor is the exchange rate. Our government is working on a yuan clearinghouse in South Africa, which would allow Chinese investor to trade in yuan on the Johannesburg exchange. That’s not something we can do today. Thus, Chinese investors would probably have to use currency derivative products to hedge against exchange rate fluctuations.

Q: How do South African investors view the Chinese market?

A: They are interested. Many South African companies have already set up operations in China. We also have a Chinese exchange-traded note listed on our exchange, which enables JSE investors to buy a basket of Chinese blue chips.