Net purchases of JSE equities and SA government bonds by foreigners, on a rolling annual basis, has just turned positive as of end of January 2018, signaling a new JSE bull market and economic recovery.
I have used this indicator for decades as one of my tools to detect when things are going to be good or bad for local stocks. The data goes back much farther than the chart shown but you can see that when this indicator goes below zero, nothing good ever comes of the stock market. Even though the JSE never crashed in the last 3-year bear market, market breadth did and the price of the JSE in dollars (viewpoint of the foreign investor) also did. But in the end, a sideways market for 3 years destroyed wealth for local investors considering high inflation over the period.
Here is another nifty way I like looking at this data – counting the months of outflows in the last 10. If more than half (5) months are outflows, then we are entering a bear market. This has dropped to zero in the January 2018 reading, flagging a new bull market:
I have no doubt that SA is going to receive a flood of inflows over ensuing months – provided Ramaphosa can continue acting on corruption, appointing competent, honest people into government positions and getting the necessary policies in place to pick our economy up off the floor. It could be the mother of all JSE bull markets because 2018 has already been hailed the year of emerging market inflows by the major international brokerage houses.
Dwaine van Vuuren
RecessionAlert, Sharenet Analytics
Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.