The Editor's Desk - Thur 15 Jan 2026: Two red flags - flow-driven markets and SA’s foot-and-mouth vaccine mess

ETFs and mandates are reshaping markets. In today’s Editor’s Desk, BizNews editor Alec Hogg explains why $1 of inflows can move $5 of market value—plus what SA’s foot-and-mouth vaccine fiasco says about state capacity. R10k prize for your best 800-word investment idea..PS. You can book tickets for the post BNC#8 golf day sponsored by Shyft, by clicking here..Don't miss out on future episodes of The Editor's Desk. Subscribe to BizNews Premium and get the podcast delivered to your inbox daily..Listen here.Read the full transcript of The Editor's Desk podcast below.Hello and welcome — I’m Alec Hogg. You’ve seen the headlines on BizNews.com, watched and listened to the interviews on BizNews TV and BizNews Radio. Now let’s talk about what the latest developments mean for your money. This is the Editor’s Desk — exclusive analysis for BizNews Premium members. Today is Thursday, 15 January 2026. Glad to have you with me.A piece in The Economist caught my eye this morning. It refers to research by Xavier Gabaix and Ralph S.J. Koijen — two heavyweights who’ve produced a 55-page paper they call the Inelastic Markets Hypothesis. Gabaix is at Harvard; Koijen is at the University of Chicago Booth School of Business. They have a fine pedigree — and what they’ve put together really gave me pause.As a consequence, I’ve put something together for you to interpret it. We’ve also embedded the full paper for those who want a closer look. In essence, they argue that stock markets have become so dominated by mandates — exchange-traded funds, institutional mandates, pension funds that have to allocate money in certain ways — that the portion of the market still driven by valuation-based decisions has become relatively small.That has profound implications. In the past, because most money was managed actively, if there was an arbitrage opportunity, fund managers would rush to exploit it. But ETFs don’t do arbitrage. They buy what the mandate requires — and they buy it at the market price.If your mandate says 1.5% of your portfolio must be in a stock because its index weight is 1.5%, you don’t sit there and say, “I’ll wait until the price is attractive.” You buy it at the price it’s trading at.Gabaix and Koijen argue that, as a result of these flows, each $1 of net inflow can now have a roughly $5 impact on overall market capitalisation. That helps explain the massive market caps we see in today’s “popular” stocks. Who would have thought you could get a company worth $4 trillion? It’s mind-blowing.It’s also mind-blowing to think how a $4 trillion company ever returns that value to shareholders over time. But that’s not how stock markets are working anymore, according to this hypothesis. We’ve always assumed markets are elastic — that prices move meaningfully in response to valuations. Their thesis is that markets have become more inelastic — increasingly driven by flows rather than fundamentals.It’s a heck of a watershed — and it makes sense on a lot of levels. Of course, it’s also a big red flag: if you’re invested in stocks and there’s a 5-to-1 boost on the way in, then you’ve got to recognise there can be a 5-to-1 collapse on the way out.At some point, the party has to end. And the impact won’t be sensational in a happy way — it’ll be sensational in a very unhappy way.You can extrapolate this to the South African market too. Look at recent moves in share prices versus an economy where GDP per capita has gone backwards over the past decade; where companies spend more time on compliance with destructive policies; where business growth has been constrained — and yet the stock market has shrugged it all off.It’s the kind of “melt-up” proportions Magnus Heystek spoke about earlier this week — and what we saw through 2025. Look at where the flow of funds is coming from on the JSE and how passive managers have mushroomed — ETFs, index funds and institutional mandates taking an ever larger share of money invested.Active fund managers — the Sean Peches, the Piet Viljoens and other value managers — look at this and say: “This is crazy.” Here’s a company like Lewis trading on a 9% dividend yield and a very low single-digit price-to-earnings ratio. How can that be? And how can it stay there indefinitely?They’re assuming the valuation gap will close — that arbitrage will do its job. But if flows matter more than valuation, that gap might not close quickly… and it might not close at all in the short term.That said, they’re still doing the smart thing. If you want to be a co-owner of a company, don’t join a popularity contest to buy your slice of the business. Look at the bottom line — because at some stage, the popularity contest ends.When something that was fashionable suddenly goes out of fashion, people run for the exit — and valuations can collapse very quickly. Whereas if you bought a good business at a good price, you’re far more protected when the reverse inevitably happens.I’m not saying there’s a crash today. But at some point, the flow of funds will reverse. And it’s likely to reverse when liquidity reverses — either locally or globally. Locally, flows can be impacted by South Africa’s geopolitical position. We’re a very open economy: a large share of business activity is tied to exports and imports.Internationally, if the Federal Reserve tightens, you’ll get a predictable impact on flows. If the US economy falls off a cliff, you’ll get a predictable impact there too.For the moment, liquidity in the US is still expanding. And although share prices have been driven well beyond historic “good value” levels, this hypothesis suggests the key moment to watch is when flows turn — not simply when valuations look stretched.Fascinating. As I mentioned, you can read the full 55-page report, and I’ve also written a short article to help interpret it.Also on our site this morning: I spoke with Athol Trollip — a farmer who went into politics, then left politics after a long career, and went back into farming. He’s a proper farmer from the Eastern Cape.As I said in the interview, it’s a pity ActionSA didn’t join the Government of National Unity, because Trollip would be an excellent Minister of Agriculture. He knows farming and he knows farmers — that’s his game.Instead, the feedback I’m getting from the farming community is that Agriculture Minister John Steenhuisen is listening to the wrong people. That view is made forcefully by Trollip — and yes, you’d expect that: he’s a political opponent. Trollip is the parliamentary leader of ActionSA; Steenhuisen leads the Democratic Alliance.But on foot-and-mouth disease, the reaction from farmers has been intense. And I do have a bit of feel for this: I had the privilege of farming for a few years. I’m no expert — but I understand enough about livestock, veterinarians, viruses and vaccines to know when something doesn’t add up.I listened to Steenhuisen’s press conference yesterday, and one of his so-called experts said “no animal dies of foot-and-mouth disease.” That’s seriously dumb — it’s like saying nobody dies of pneumonia; they only die because they stop breathing.The knock-on effects are real. With foot-and-mouth disease you can see mastitis in cows that can’t be milked properly, leading to infections and death. And newborn animals — piglets, calves, kids — have extremely high mortality rates. So yes, animals certainly do die as a result of foot-and-mouth disease.The message from the farming community is: Steenhuisen is being badly advised, and he’s not fully informed.What they’re calling for is simple: untie our hands — allow us to source vaccines. We have a ridiculous situation where, because foot-and-mouth is a state-controlled disease, farmers aren’t allowed to buy vaccines even if they can find supply.As you’ll hear in the conversation with Trollip — it will be in the Director’s Cut tonight at 8pm — the Onderstepoort Biological Products (OBP) vaccine facility received a R500 million injection of taxpayer money that appears to be unaccounted for. It has certainly not produced what it was supposed to.Once again, corruption and failure in the public sector can have a massive multiplier effect. Foot-and-mouth disease is a big story — and it’s going to be with us for some time.To close off today’s Editor’s Desk: I’m looking for the hidden great investment voice of South Africa. If you fancy yourself as an investor — or you’d like to share your insights — please send us a piece of no more than 800 words.Help us help the community: share your insights into a stock, a sector, or an area you can argue is overpriced or underpriced. We published a contribution today on Weaver Fintech, and it’s the kind of work I’d like to feature more of from our community.Apply your mind and send us something. Who knows — your passion might even become a source of income in the future. There’s a R10,000 prize for the best contribution we receive.I’ll leave it there for today. Keep an eye on your Premium newsletter for links to our freshest published content. Thanks for trusting us with your time. I’m Alec Hogg — until tomorrow. Cheerio.

The Editor's Desk - Thur 15 Jan 2026: Two red flags - flow-driven markets and SA’s foot-and-mouth vaccine mess

Related Stories