Cry my Beloved Country

There is always something about our place of birth which draws us back on a far deeper level than mere conscious memories. At the moment I am being reminded on many different levels: each night I am embarrassed to say I watch “I am a celebrity get me out of here (Australia)” which is being filmed in South Africa and I am constantly reminded via Facebook of the “load shedding” (blackouts due to failed electricity infrastructure) which affects all levels of society. Yes even rich people with generators are affected as traffic lights go off and cause havoc on the road system and there are many other examples.

I am told that water is now a problem as well forcing the richies to build water tanks to avoid the inconvenience of missing bath time. Not to mention the out of control spiral of violence that permeates the very air rich and poor breathe. But there are further cracks appearing to this fledgling democracy with the President of the country Zuma shutting down freedom of speech in the hallowed halls of Parliament. Yes this is the man who has more than 700 counts of corruption being brought against him.

My friends tell me things have become incredibly expensive and the gap between the haves and the have not’s is widening at a rate of knots. Unemployment is climbing, economic growth is declining and with all of this you will be forgiven for thinking that the share market will be in the toilet. After all doesn’t the mood of the people dictate the state of the markets?

Well I hate to shatter that illusion – the JSE All Share Index is currently trading at all time highs.

south-africa-stock-market

There is one simple point I wish to make here. This market is a tiny market on the world stage and despite the South African’s superiority on the African continent this really is a minuscule market in global terms. When capital flows with force it will dominate its environment. This rise in the stock market has nothing to do with the economic fundamentals in South Africa, this is all about a world that allocates capital to themes, South Africa has been a beneficiary of the emerging market theme (BRICS) and it has also been a victim of its own success, meaning that there are very few quality assets to invest in so the stock market becomes a vehicle for a distorted deployment of local investment capital.

Investing in illiquid markets is one of the most dangerous things a trader can do. Efficient price discovery is absent meaning there is no anchor. When there is no anchor you are easily buffeted by the prevailing conditions of demand and supply, and ones behaviour becomes very manic/extreme. For this reason you see the classic boom bust scenarios in their extreme in these types of markets. The South Africa stock market has provided a gift of epic proportions to those lucky enough to have been invited to the party. Remember all parties end and it will be wise to avoid the stampede that is likely to appear at this exit door.

 

 

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