Firstly, notice how in the below two graphs the Mid Cap index in the JSE has outperformed both the Top 40 and the Small Caps indices over the last twelve month period. Then you also need to notice how the Mid Cap index's Price Earnings ratio has re-rated upwards to its current 15.4x rating over this same period.

JSE Index Performance (Top 40 vs Mid Cap vs Small Cap) - 12m period

JSE Index Price Earnings (Top 40 vs Mid Cap vs Small Cap) - 12m period

Finally, and then probably the most important, I have built a relative liquidity model for the mid caps too (in this case, Mid Cap Value traded is divided by Top 40 value traded, as the theory is that liquidity trickles downwards in the market).

(See the small cap relative liquidity here and follow the links in the article to get to the 'relative liquidity theory' which I am applying here to the mid caps in the JSE: Q1:12 Small Cap Liquidity.)

Notice how the Mid Cap's relative liquidity is not just at a high, but it is a decade high even through the pre-Credit Crisis boom years!

Mid Cap Relative Liquidity (versus the Top 40)

Basically, the Mid Caps have run hard in the last 12m, this run has not been supported by profits, but rather by a re-rating in the market. And, finally, there seems to little relative liquidity left to allocate to this section of the market.

More than likely, this has mostly just been foreigners bidding our retail stocks (amongst other stocks) up to ridiculously multiples.

And, so I conclude, the Mid Caps appear top heavy and, in the face of the profit curve-balls being released into the market recently (read: ABSA, Kumba etc), I would avoid blindly allocating new capital into this portion of the market.

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