Another tenant is leaving the shopping centre. Omnia, a chemicals group supplying agriculture, mining, and industry, has received a buyout offer. Investors respected and followed Omnia for decades. Over the past five years, including dividends, it returned an astonishing 29% per year. Its departure is not just another corporate deal — it’s another shop shuttered in a mall that is steadily emptying out. And when tenants leave, others soon follow.
South Africa’s poor growth is the landlord here. Without economic expansion, businesses struggle, investors lose faith and the shelves grow bare. The numbers are stark. The JSE’s main board now counts 275 primary listings, down from 425 a decade ago. Each exit narrows the field. For fund managers, trying to fashion a decent portfolio in this environment is like trying to stock a shop with goods past their sell‑by date.
Which takes us to regulation 28 of the Pension Funds Act. This sets limits on how retirement funds invest: up to 75% in equities, with offshore exposure capped at 45%. The equity cap is sensible. No one argues against prudence. But the geographic straitjacket is not. Investors should be free to allocate that 75% wherever the best opportunities lie. Instead, regulation 28 forces a large portion into domestic equities even as the JSE shrinks.
Small and concentrated
What remains of the JSE is a market dominated by volatile miners, banks, financials, tobacco and booze. Outside of Naspers and Prosus’ Tencent stake, there is no tech. A handful of smaller industrials offer quality, but building meaningful holdings is nearly impossible. Regulation 28, meant to prevent concentration in risky assets, now enforces it.
Some argue that allowing funds to invest 45% offshore has drawn attention away from the JSE, leading to poorer valuations and subsequent delistings. I don’t buy that. The real culprit is South Africa’s poor economic performance over many years. Growth has been anaemic.
And government ideologies masquerading as policy demands on businesses have discouraged investment. The cost and complexity of BEE compliance, rigid labour laws, policy uncertainty and regulatory burdens have all combined to keep capital away. The JSE itself has done little to pressure the government into reform.
And let’s be clear: the JSE is not a government body, it is a listed company, and a profitable one at that. Its own earnings show no signs of strain. The delistings are not the result of offshore allowances but of a domestic environment that has steadily eroded confidence and opportunity.
Yet while the JSE contracts, global markets surge ahead. Over the past decade, the S&P 500 has returned 255% (13.5% per year) compared with, in dollars, the JSE’s 90%, or 6.6% per year. (And the latter was flattered by last year’s gold‑driven rally.) The US, powered by technology, compounds wealth at a pace South Africa cannot match. Pensioners abroad benefit from exposure to innovation. Here, retirement funds are locked out. Individuals can invest offshore freely, but pension funds and other vehicles governed by regulation 28 cannot. They are shackled to an exchange that is slowly being hollowed out.
Offshore proxies, outdated rules
Regulation 28 insists on “domestic exposure”, yet the domestic market is itself a proxy for foreign businesses. Around 80% of the JSE’s market cap comes from companies whose operations are largely offshore: BHP, British American Tobacco, AB InBev, Richemont, Naspers, Prosus and so on.
Even where regulation 28 allows 45% offshore, the rule forces managers into a destructive cycle. Offshore markets outperform, but to keep the mandated balance, managers must sell the winners and prop up the losers. It is the opposite of sound investment practice. Pensioners are denied the compounding effect of holding onto global leaders, while their savings are recycled into the trailing domestic market.
Regulation 28 was meant to protect pensioners. Today, it prejudices them. It locks retirement savings into a shrinking, lagging, illiquid market while pretending to safeguard them. Each delisting, like Omnia’s, is another reminder that the rules are outdated.
Policymakers must act. Either adapt regulation 28 to reflect the global reality of our markets or abandon it altogether. Pensioners deserve the freedom to benefit from the same compounding opportunities that investors elsewhere enjoy. To do nothing is to condemn retirement savings to stagnation and decline. Reform is overdue. And it is the only way to protect the dignity and prosperity of South Africa’s retirees.
