In recent years, this has been a great forecaster of annual changes in the All-Share index. Since January 1996, variations in the 12-month running total of foreign buying of US equities have explained 45 per cent of the variation in the All-Share returns over the following 12 months. The dividend yield, by contrast, can explain only 25 per cent. And if we combine foreign buying with the dividend yield, it's possible to account for half the variance in annual returns.
For example, big foreign buying of US equities in 2000 and 2007 led to the All-Share index falling in the following 12 months, while low buying in 2003 and 2008-09 led to good returns in the next 12 months.