Calling a bubble is hazardous and may trigger a bad call on the ZAR

Key points

• A lot has been made of the risk of a bubble recently. Many investors in the stock market are concerned that they are in for a period of volatility that will upend their financial market positions and trigger significant fluctuations in riskier investment destinations. SA and the ZAR would be one such destination.
• A more critical assessment, however, highlights that calling a bubble is not so easy and that traditional methods should not be relied on blindly. The risk for many investors is that they remain too conservative in their views and do not full capture the full performance of a new technological era.

BASELINE VIEW: For the ZAR, anticipating further gains relies heavily on the call of whether US equities are indeed in a bubble. A bursting bubble will hurt the ZAR. However, a benign and constructive stock market climate may see the ZAR extend its gains. More evidence is stacking up to suggest the latter and for the ZAR to appreciate further.

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