“ This year, as well as in 2016, the bulk of assets under management per client were between R3m and R10m ”

- 2017 Top Private Banks & Wealth Managers survey

“ 60% of private bank clients rate the quality of advice they receive as ‘very good’ or ‘excellent’ ”

- 2017 Top Private Banks & Wealth Managers survey

“ 57% of clients rate their broker's service as excellent, up from 40% last year ”

- 2017 Top Stockbrokers survey

“ 6% of stockbroker clients execute trades worth more than R100,000 a month ”

- 2017 Top Stockbrokers survey

“ 40% of stockbroker clients average monthly trades of R5,000 or less ”

- 2017 Top Stockbrokers survey

“ 42% of clients chose their broker through word-of-mouth recommendations ”

- 2017 Top Stockbrokers survey

“ Of the 100 largest JSE-listed companies, 87 conducted BEE deals, 35 of which included public benefit organisations ”

- 2017 Empowerment Endowment

“ R32.6bn in endowments are now held by foundations set up as a result of BEE deals that will support charitable activities ”

- 2017 Empowerment Endowment

“ The percentage of wealth management clients who are “extremely likely” to recommend their institution declined to 53% from 78% last year ”

- 2017 Top Private Banks & Wealth Managers survey

“ This year, 35% of wealth management clients say they receive excellent value for money, down from 54% last year ”

- 2017 Top Private Banks & Wealth Managers survey

“ More than 70% of wealth management clients rate the quality of the advice they receive as ‘very good’ or ‘excellent’ ”

- 2017 Top Private Banks & Wealth Managers survey

“ R51.6bn value created specifically for charitable recipients through BEE deals ”

- 2017 Empowerment Endowment
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Researching Capital Markets and Financial Services

Latest News

The Myth of Corporate Cash Hoarding

Monday, 18 September 2017

Press release

Is corporate South Africa hoarding cash? The answer, according to a new research report by research and consulting firm Intellidex, is “no”. Intellidex studied the balance sheets of the largest industrial and mining companies listed on the JSE and found that over the last 10 years, cash balances have fluctuated between 6.4% and 10.2% of total assets, and in the most recent year were at 7.8%. This is considerably less than other countries, where cash balances of large companies are usually over 10%.

Download the full report here.

Download the launch presentation here.

The report reveals that the sample group held R765bn worth of cash – up from R154bn 10 years ago – and that while this appears to be a significant growth in cash balances, this can be explained by a range of factors.

Stuart Theobald, Executive Chairman at Intellidex and a co-author of the study said at the launch of the report: “After adjusting for inflation, cash holdings have grown by 11% a year, but much of this growth can be explained by the depreciation of the rand and the overall growth of companies.”

Many of the companies in the study have operations around the world and so hold cash balances in hard currency. In 2007 the rand was R7.29 to the dollar; by 2016 it had depreciated to R16 to the dollar. This means that every $100 of hard currency holding would have increased from R729 to R1,600 over the period, an annual growth rate of 8.18%.

“While it suits some to talk of cash hoarding and investment strikes, the evidence simply doesn’t support this. Companies are generally holding no more cash than they always have when seen in the context of their overall balance sheets,” said Theobald. “To the extent that there is variation in cash holdings of companies, this is strongly correlated with the economic cycle. Companies increase cash holdings when the economy is performing poorly, showing that they take a cautious stance in the face of difficult conditions. This ensures they don’t find themselves with a shortage of cash if revenue comes under pressure, something that would be damaging for those companies, their suppliers and employees.”

The study showed that capital expenditure by companies has been substantial, and has not diminished. The 85 companies studied collectively invested R694bn in the 2016 financial year. The amount invested in the last five years was considerably more than the preceding five years. Co-author of the study, Intellidex senior analyst Orin Tambo, said “The argument that capital expenditure has been declining simply is not true. The data is clear that companies have continued spending, both on expansion and replacement investment.”

The study also found that companies save cash in order to invest in replacement capital spending – so to replace plant and equipment as it wears out. Much of the cash held by companies represents savings for this purpose. It also found that company debt levels have increased over the last 10 years and some companies have increased liquid assets in order to manage the overall risk of their balance sheets.

An alarming finding was that in the case of mining companies, the return on capital is currently lower than the interest companies can earn on cash. This means that it is more profitable for such companies to hold cash than it is to invest – to invest cash into mining operations will reduce the value of the enterprise. Shareholders in mining companies are better off if the companies don’t invest. “We should not want companies to invest when it won’t earn the returns required to justify the risks. If they do that, they are actually destroying value in the economy, which does not help anyone,” says Theobald.

The study was funded by Business Leadership South Africa (BLSA) but conducted independently by Intellidex.

Bonang Mohale, CEO of BLSA, said; “The findings of this research have effectively busted the dual myths of ‘investment strikes’ and ‘corporate cash hoarding’. It’s clear that South African businesses continue to invest in South Africa and hold cash reserves at appropriate levels. Like in any country, South African businesses are structuring their balance sheets responsibly in response to a weaker economy and a lack of policy initiative from Government. Government can change the equation by promoting consistent policy that supports economic growth. A credible outlook for the economy combined with regulatory certainty and political stability will inevitably lead to more investment.

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Intellidex is a leading research and consulting firm that specialises in capital markets and financial services. Its analysis is used by stockbrokers, regulators, lawyers and companies looking to understand capital markets in Africa. Its market research is used by banks, fund managers, stock brokers, wealth managers and other financial service providers to understand their market places. It also publishes highly influential assessments on the retail and institutional stockbroking industries, private banking and various ad hoc reports on aspects of the South African and other African economies.

Business Leadership South Africa (BLSA) – is an independent association whose members include the leaders of some of South Africa’s biggest and most well-known organisations. Through this forum, South Africa’s business leaders engage key players in South African society, including civil society and labour to exchange ideas in our national interest, and to create effective dialogue with government and other stakeholders.

The organisation is focused on three core activities, all of which combined with the #BusinessBelieves Contract with South Africa and the Integrity Pledge, will help to facilitate a better and inclusive South Africa in the future.

• Advancing a modern, inclusive and growing economy;
• Upholding the Constitution and protecting the integrity of the state; and
• Demonstrating that business is a national asset, and is central in addressing poverty, unemployment, economic injustice, workplace transformation, and racism.

Amount invested in tax-free savings accounts doubles over the last year

A total of R5,174bn has been invested in tax-free savings accounts as at end-February 2017, close to double the R2,6bn from a year earlier. And 459,848 TFSAs have been opened since inception in March 2015, with 207,172 of those having been opened in the 12 months to end-February 2017.

The average account value is R11,251.

Those are the headline numbers from a survey of all TFSA providers conducted by financial research house Intellidex in March this year, covering to 28 February 2017, the end of the tax year.

This is Intellidex’s third survey on the TFSA market. It sourced figures from all TFSA providers in SA, gathering information for the 12 months to 28 February 2017, adding to data collected on the previous two years since TFSAs were launched. The study focused on all TFSA providers including stockbrokers, asset managers, banks and life insurers.

A total of 26 firms responded to a questionnaire sent in March 2017, though some were from different divisions of the same firm (eg, banks’ cash and stockbroking TFSA offerings). We estimate the sample includes more than 95% of the universe by assets and the results are a reliable guide to total market activity.

The main goals of the survey are to assess the impact of TFSAs on savings behaviour in South Africa and on institutions in the investment industry and the products they develop.

The full report can be accessed at www.intellidex.co.za/tfsa2017.

Other key findings include:

  • A total of 207,172 accounts were opened in the 12 months to end-February 2017 (averaging 567 accounts a day).
  • The net number of accounts opened (after incorporating accounts closed) rose by 39% from the previous year.
  • Respondents believe that 13% of TFSAs opened in the year to end-February 2017 are by first-time savers, indicating that the accounts do have a reasonable effect in galvanising people to become savers. It should be noted that an unknown number of these are held by minors, where parents have effectively donated the balance.
  • About 70% of the assets held in TFSAs are new to the firms that manage them (rather than being transferred from existing investments). While some of these would have accrued to the firms in the absence of TFSAs, it does indicate that the TFSAs provide a means for firms to attract new assets.
  • Of the 207,172 new accounts opened in the 2016/17 tax year, 157,331 (76%) of clients held existing accounts with their TFSA provider.
  • Cash TFSAs offered by banks continue to dominate the market. The major asset class held in TFSAs is in the form of cash at just over 47% (from 51% the previous year), followed closely by equities, which rose from 36% to 40%.
  • However, the other asset classes have seen strong growth in average account balances compared with banks. Total equities under management more than doubled to over R2bn. Similarly, the average value in collective investment schemes grew 29% to R27,452, while that of life insurance accounts rose by 16% to R16,680. In contrast, the average account value for bank balances barely changed.
  • An estimated 49,841 TFSAs, or 13% of all accounts, have been opened by first-time savers since inception.
  • Appears that annual limits are not serving as a hindrance to low-income earners, with only about 8% of new accounts invest the full amount on opening the account.

Intellidex launched the website savetaxfree.co.za last year to help savers identify account providers. The site has tools to assist users to identify accounts that match their needs, with more than 500 hits per day. The survey of TFSA providers helps regulators and those in the market understand the trends and features of tax-free savings market.