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Definition

Perceptions are very important in the stock market. They determine the overall "mood of the market" - is it bullish or bearish? They are also reflected in international investment sentiment which alternately switches between "risk-on" and "risk-off". In a state of risk-on, international investors are seeking the real returns which are available in emerging economies such as South Africa. The inflow of their funds usually causes the rand to strengthen. On the other hand, when sentiment switches to risk-off, funds flow out of South Africa and usually into US Treasury bills or some other safe haven investment which offers much lower returns. General investor perceptions are sometimes wrong which provides the private investor with an opportunity to capitalise, because as perceptions correct themselves, the share concerned will move. It has been well said that you can only make money in the share market when the market on average is wrong and you are right.

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