Steinhoff, Intu Properties plc, and two property funds, Fortess and Resilient, were dropped from the Johannesburg Securities Exchange (JSE) Top40 index on Monday, in one of the index's biggest shake ups in recent memory.
Steinhoff's share price took a knock of more than 90% since being flagged for financial irregularities by Viceroy Research. The stock has been a component of the Top40 for more than five years. In 2016 it was among the 10 top performing JSE stocks.
Like Steinhoff, Resilient and Fortress also exited the JSE Top40 with a bang. Sygnia Asset Mangement CEO Magda Wierzycka called the income funds out as "ponzi schemes" that the exchange blatantly disregarded for years, implying that the JSE knew of their alleged underhanded dealings.
I wonder if one can sue the auditors and the JSE for blatant disregard of the Resilient/Fortress ponzi scheme which they tolerated for years. Billions lost in savings. I had to call them to alert them! Ridiculous.— Magda Wierzycka (@Magda_Wierzycka) March 8, 2018
Resilient and Fortress' cross-holding (Resilient owns about 16% of Fortress), accounting practices and valuations underpinning the company’s controversial relationship with its broad-based black economic empowerment (B-BBEE) partner Siyakha Education Trust, have also come under spotlight, resulting in significant stock price drops for both.
Thanks to the fall of the giants, logistics company Imperial Holdings and major retailer Spar are now among the top 40. So are – more surprisingly – fashion retailers The Foschini Group and Truworths.
Regional manager for Gauteng at Overberg Asset Management, Werner Erasmus, recalls how "retail stocks were definitely under strain as little as six months ago.
"The sector was depressed by weak economic growth, subdued consumer confidence, and declining earnings with a raft of earnings forecast downgrades and sell recommendations from analysts," Erasmus says.
But after Cyril Ramaphosa was elected ANC president in December, the general economic outlook changed – and banks and retailers rocketed.
Their most recent earnings may not warrant the optimistic prices attached to their shares now, Erasmus says, but fashion retailers are back in fashion.
Steinhoff and Resilient/Fortress' exit from the Top40 now puts them into the JSE's Mid Cap index, which represents the next 60 largest companies from the All Share Index by full market capitalisation, after the Top40.
That has made well-known investor, trader and stock market commentator Simon Brown very wary.
In the case of Steinhoff their nefarious activities have been confirmed, Brown tells Business Insider South Africa, but there is uncertainity around Resilient and Fortress; those groups have denied the allegations against them.
That could see massive volatility as news – and perhaps evidence – emerges and that is unsual for mid caps.
"The fallen angels (or devils) entering the Top 60 index have overhanging problems and don't have much to do with our local economy," says Eramus. "They have got little profit or business in South Africa."