Bearish signals stalk SA stocks

It’s been a great month, but things may be about to turn grim for South African stocks, if technical signals are any guide.

The benchmark is coming off its longest winning streak since January 2014, rising for 10 consecutive days through Wednesday. The FTSE/JSE Africa All Share Index this week revisited levels above 60 000, last seen in February, taking its August advance to 4.8%, set for the best month since April.

But there are some metrics that suggest the good times may be over:

The benchmark index is trading at the widest margin above its 50-day moving average in eight months. The last time the spread reached this level, in November, the gauge slumped 6.3% in the following three weeks.

The South African market is vulnerable to moves in certain key stocks.

Sixty percent of this month’s rise in the benchmark index are due to gains in Naspers, whose fortunes are strongly tied to the performance of its 31%-owned Tencent in Hong Kong and luxury brands owner Richemont, which often moves with changes in the value of the rand.

Mining giant BHP Billiton and Sasol Holdings, a stock that responds to oil-price moves, round out the four most-significant index members.

While still cheap relative to most developed-nation stocks, South African equities are becoming expensive when compared to emerging-market peers.