The market is ripe with fresh opportunities… and the list of charts we want to buy is growing longer by the day.
But we can’t buy them all, so we have to make some tough allocation decisions.
This is one of those situations where relative strength really comes in handy.
As leadership continues to emerge overseas, we’re leaning into areas that most investors don’t pay any attention to at all.
This playbook of buying the most obscure outperformers around the world keeps working, so we’re going to keep running it.
The latest to join the global bull market party is South Africa.
The Rand is still basing against the US Dollar, setting the stage for what could be a powerful breakout. But equities aren’t waiting around. The MSCI South Africa ETF $EZA just ripped to fresh seven-year highs.
Typically, we see the currency lead the way—strengthening against the Dollar first—with equities following. This time, the script is flipped, as South African stocks are breaking out ahead of the currency.
South Africa’s market is dominated by Financials and Materials, with a significant weighting toward gold and other precious metals miners, including exposure to platinum and palladium. This group has been home to some of the best stocks throughout the entire cycle.
When commodity stocks and other cyclical areas lead the way, it’s often a bullish signal for the entire emerging market complex.
So here’s the bigger picture: if South Africa is showing leadership, that’s a major vote of confidence for ex-US and EM equities more broadly. It’s the kind of confirmation we want to see in a weak dollar cycle.
For broad exposure to this theme, we’re looking at the MSCI South Africa ETF $EZA:
As long as EZA remains above 57, we like it long with a target of 76.
As always, for our individual equity exposure, we want to lean on relative strength at the component level.
Right now, we have two South African names on breakout watch.
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