Foreign Investors Flee SA-highest pace since democracy

2016-08-01 10:42

Foreign investors have fled SA assets in the last 12 months to the tune of a 21-year record R105 Billion.

The JSE’s technical glitch that resulted in a R134bn over-estimation of non-resident buying of SA local shares from May-July is still fresh in our minds. It was interesting to gauge the response to this glitch, with some well-known market commentators saying it meant nothing and others saying it was a huge thing. Needless to say, the JSE downplayed the glitch as part of their damage control.

We are astounded by those commentators who are of the opinion that the glitch doesn’t amount to much as far as the markets are concerned. It is well known in quantitative circles that bond and equity purchases by non-residents must be viewed together to be able to impart any meaningful information, and it is also well known that the bond market is much bigger than the equity market with regards to flows. But the R134bn equity purchases error is so large it simply cannot be wished away, even when considering the bond market flows.

For some years now we have been monitoring daily net purchases of SA equities and bonds for our clients, as one of the 12 components that determine the favorable/unfavorable environment for the JSE. Net bond & equity outflows are without a doubt one of the 12 Signs of a JSE Bear Market  and the subject is covered in our nationwide training workshops (you can book here. )

Below is a chart of the annual rolling net purchases of bonds and equities by non-residents, corrected of course by the R134bn error for May, June and July for equity purchases.

We see non-residents were net sellers of a mind-numbing R105bn of SA bonds and equities over the last 12 months. Annual rolling outflows dipping below zero is fair warning of a pending bear market in SA stocks, having successfully pinpointed the 2002-2003 bear market and the 2008 financial crises.

You can also see why we were incredulous at the dismissal of the R134bn glitch as that effectively brought annual net purchases R30bn into positive territory in the above chart, telling an entirely different story to the one you are witnessing in the above picture. With the corrected numbers, we see annual net outflows at record setting levels, even higher than those set by the 2008 Great Financial crises, and exceeding any outflows seen since our democracy was born in 1994.

For some other fascinating charts and facts about what this means to SA Inc. and specifically our Rand and JSE stock market, you can see the rest of this article that was originally published last week over at SharenetVIEWS.

If you are interested in The Twelve Signs of a JSE Bear Market you can see:

Bear Market Sign One : Open Interest

Bear market Signs Two : Declining Market Breadth

Bear Market Sign Three : Foreign Flows

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