As South Africans are able to invest more freely abroad and South African companies seek dual listings listings on both the Johannesburg Stock Exchange and other stock exchanges investors with more speculative inclinations may be wondering about arbitrage opportunities.
Arbitrage means taking advantage of pricing inefficiencies between different markets. If a share's reigning price on the Johannesburg Stock Exchange is R5 and its reigning price on, for example, the Botswana Stock Exchange is the equivalent of R5,50, a fast-footed investor should theoretically be able to sell the share in Botswana and buy it in Johannesburg, making 50c profit (less costs) per share.
According to Rupert McCammon, chief executive of Stockbrokers Botswana, there is as yet no arbitrage opportunity between South Africa and Botswana because existing regulations lay down that a share bought in Botswana can only be sold in Botswana. This restriction will be removed when Botswana abolishes its remaining exchange control rules.
But there are other limitations on arbitrage opportunities, McCammon says.
At the moment there is insufficient stock in Botswana for local residents to trade from the Botswana register. Stockbrokers have to buy the shares in South Africa for delivery to Botswana investors. This situation will change in time.
Also, currencies in sub-Saharan African countries tend to track the rand quite closely.
Usually the main arbitrage activity for South Africans is centred on Europe, Greg Potter, partner of stockbrokers SMK Securities, says.
There is little interest from South Africans in using their foreign allowances to invest in other African markets, he says, though McCammon says interest is clearly starting to increase.
Potter says information about domestic African shares is meagre and speculative arbitrage opportunities are limited by the close relationship between sub-Saharan currencies and the rand.
Since the purpose of investing abroad is diversification of risk, South Africans are usually advised to diversify out of emerging markets, of which South Africa is one, into developed markets, Potter says.
Examples of suitable markets are Switzerland where a number of South African gold shares are listed as well as Richemont, which is listed as a domestic Swiss security and so trades freely Paris, Germany, Brussels and London. Brussels has an active market in gold shares so is one of the preferred markets for South African gold share arbitrageurs.
But there are other advantages to investing in African stocks, McCammon says. For example, Botswana has no marketable securities tax or stamp duty, which will add a profit margin to arbitrage trading when this becomes possible.
More important, Southern African stock exchanges are among the world's fastest-growing although also more risky and illiquid than many other markets. For example, Zimbabwe was the third best performing stock market in the world last year and Botswana is among the top three performers in the year to date.
"The countries around South Africa are growing twice as fast as South Africa is," McCammon says. "That is where opportunities lie."