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Speech by Humphrey Borkum, Chairman JSE Limited

It is my contention that in the over 40 years that I have been associated with the JSE, South Africans have always over-reacted emotionally towards the exchange. When there is a bull market people believe it is never going to stop and when there is a bear market everyone believes that the sun will never shine again.

South Africa appears to be at the height of a gloom cycle at present but let me try and put matters in perspective. I have now experienced five bull and five bear markets on the JSE. Whenever markets correct it is usually due to sharp downward or upward spirals in a particular sector. In the late 1990's the downturn was caused by the dotcom crash and in 2008 the sub-prime mortgage crisis in the US has caused upheaval in the banking and financial services domain.

Twenty years ago due to strict exchange controls, we were, to a certain extent, able to resist market trends in the rest of the world. However today, whatever the movements of the major or emerging markets, they are going to affect us.

Despite periods of uncertainty we must never underestimate the strength and resilience of the South African economy. As a one-man market research team it never ceases to amaze me every time I fly overseas to see how many international airlines now service this country. I believe that this is a reliable barometer of a country's viability and acceptability within the international community. How many international airlines fly into Harare?

Leading up to the World Cup, Durban's new international airport at La Mercy, with it's adjoining trade and agricultural export zones, will be in use by 2010. Together with Cape Town we will then have three top-class international air gateways into South Africa that will be of great benefit to the tourism and hospitality industries which are probably our greatest generators of new employment.

My other personal reflections on the state of our economy are strengthened by the number of building cranes I see in Sandton every day when I drive into work and when I visit Cape Town or Durban, the large number of ships waiting to enter these ports.

South Africa is a complex country and, although not necessarily firing on all cylinders at present, I do believe we have in place one of the most progressive constitutions in the world and, due to our free press, an environment conducive to political debate. We have a robust legal system and increasingly good corporate governance within the companies listed on the JSE and Altx.

We have first-world financial and banking services and the Mzanzi account, which is aimed at giving a large number of underprivileged people banking accounts, is a great example of South African innovation.

However, what enables me to sleep more easily at night is South Africa's staggering mineral wealth. For more than a century South Africa's economy has been built on the country's vast resources - nearly 90% of the earth's platinum reserves; 80% of the manganese, 73% of the chrome; 45% of the vanadium and 41% of the gold. We are the fourth largest producer of diamonds and have huge deposits of coal of which we are one of the world's leading exporters.

South Africa's mining industry is a well established and resourceful sector of the economy, has a high degree of technical expertise and the ability to mobilise capital for new development. It has provided the impetus for the development of an extensive and efficient physical infrastructure and has contributed greatly to the establishment of the country's secondary industries.

A large percentage of the JSE's turnover is resource based and it is the resources boom that enabled the JSE all-share index to reach a high of 33 310 on May 23. It is worth remembering that the JSE's all-share index was at 8 000 in 2001 and, to date, has remained well above 25 000 this year. The high flying Shanghai Stock Exchange has lost 50% in the last nine months and the Mumbai bourse is down 30% this year.

There are two other areas of the South African economy that give me cause for optimism - investment by the public sector in infrastructure and the emergence of a black middle class.

I have been critical of Eskom but, unlike our northern neighbour, South Africa is responding to the challenge with investment. This year Eskom will spend R46 billion, next year R80 billion and by 2012 it would have spent R360 billion. Transnet has announced plans to invest R80 billion over the next five years to expand its coal and iron ore export lines and maintain and improve the country's port and pipeline infrastructure. We are spending R12 billion a year on roads and toll roads and, of course, there is the construction of all the World Cup stadiums.

Without doubt one of the great benefits to South Africa in the last decade has been the emanation of a black middle-class. In the US there is a saying "When America stops shopping you can turn out the lights". The spending of our black middle-class has given South African retailers a prosperous ride over the past few years until interest rates and the National Credit Act started biting at the beginning of this year. However, in a year or two interest rates will ease, there will be scope for tax cuts and consumption expenditure will rise again.

Despite the recent rally I can't help feeling that there are certain areas in our market where good value is beginning to emerge and I am sure that at present there are a number of investors who, working with a three to five year time frame, are starting to invest in companies that are beginning to look remarkably inexpensive. Sadly no one rings a bell when the market bottoms and it is up to each and every investor to make this call.