So here’s my favourite news item from the weekend:
If you want a summary:
Some important points:
- Foreign buyers had been fleeing SA equity markets for months.
- Then in June, weird things began happening.
- Every day, consistently, for 36 days running, foreign investors were ‘buying up’ SA equities. Which is the longest buying streak ever seen (or, at least, since 1999 – but I think that’s because data prior to 1999 is sketchy, and who has the time?).
- The previous record for foreign purchases was a 22 trading day period in April 2015, where foreign buyers purchased R27.6 billion.
- But remarkably, in the first 12 trading days of July, that record was soundly beaten (ie. in half the time).
Only, as it now seems to have turned out, that was just a statistics glitch. Awkies.
In case you’re wondering what that looks like, I quickly went and grabbed all the weekly trading stats off the JSE website going back to April (had to get in there before they get updated), and here’s a graph of a programming glitch:
So you know how I like to talk about how no one really knows what’s going on (reference: this post for starters)?
Well here’s the awkward Moneyweb article from last week Monday that has a lot of people looking egged this morning. Some quoted highlights from experts:
“We are in a situation that we have never seen before in the world, which is that most other investment classes won’t give you any return in developed markets. If you invest in German, Swiss or Japanese government bonds you have to pay in, and in the US and UK yields are extremely low. Not all investors are prepared to accept those kinds of returns. They will rather take their chances with currency movements and invest in emerging markets where they can take out insurance and still earn a better return.”
“This is just completely different to anything we have ever experienced. We have huge instability in the world and low economic growth, and usually investors would not even look at emerging markets in similar environments.”
Some suggested explanations:
“The weak rand has increased the profitability of South African companies that derive a big proportion of their profits offshore. Think of companies like Naspers, Bidcorp and MTN. If you add AngloGold to that list, which has benefited from a surge in the gold price, you start to see that the rand weakening had an impact. When all the ratings agencies did not downgrade SA, there was relief. That coupled with a general expectation of loose monetary policy in the run up to the Brexit vote brought the risk-on trade back into the market.”
I feel really bad for everyone. We all make calls to try and understand the data that is given to us – especially when someone has called and asked you for an explanation. What you can’t do is say “Um, this totes looks like a programming glitch”, because that is a far bigger call.