Emerging Asian markets set the mood for JSE direction

Investors who want to know the how the JSE is likely to move during the day should take note of the direction of emerging Asian markets, such as the Chinese stock market, according to Plexus Asset Management.

“The JSE moves more in line with emerging markets like the Hang Seng and less in line with developed markets such as the Japanese Nikkei and the US markets,” says Paul Stewart, managing director of Plexus Asset Management.

“South Africa is in a unique position – its trading hours fall almost exactly in the middle of a global trading day,” says Stewart. The opening of the JSE coincides with the closing of Australasian markets such as Australia, Tokyo, Shanghai and the Hang Seng stock exchanges, while the JSE’s closing coincides with the opening of US stock markets such as New York and Chicago.

Due to this, he says many investors look each morning at what the US market has done the night before for an indication of the JSE’s direction for that day. “Plexus set out to see whether the JSE’s daily direction follows the trend of its Asian counterparts on the same day or that of the US markets on the previous day.”

According to Stewart, the Plexus research team plotted the number of times over a rolling 50-day period that the FTSE/JSE All Share Index moved in the same direction as the Nikkei, Hang Seng and S&P 500 indices. The FTSE/JSE All Share was measured on the same day as the Nikkei and Hang Seng’s closing, and the day after the closing of the S&P 500 due to time differences.

The Hang Seng consistently reached levels of over 35 days out of 50, while the Nikkei (after exceeding 35 days only twice in 2007) tended to reach highs of just over 30 days relatively regularly. The FTSE/JSE All Share seldom traded in the same direction as the S&P 500 for more than 30 days out of the 50-day rolling periods, with the highest number of days tending to be between 25 and 30. Currently all three indices are more or less at neutral territory between 25 and 30 days.

The daily correlation between the various markets also supports the research findings. According to Stewart, the daily correlation between the JSE All Share and the S&P 500 over the past three years comes in at 39%, the Nikkei at 44% and the Hang Seng at 48%.