South African financial markets have experienced significant volatility well ahead than the years, largely due to a join up of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate suddenly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in South African financial markets tote going on changes in global commodity prices, political instability, changes in appeal rates, and fluctuations in the value of the South African currency, the rand.
Commodity Prices
South Africa is affluent in natural resources, once its mining sector contributing significantly to the country's economy. However, fluctuations in global commodity prices, particularly for gold and platinum, have a significant impact concerning the prosecution of the South African economy and financial markets.
When commodity prices are high, the South African economy and financial markets tend to produce a upshot adroitly, gone increased investment in the mining sector and increased revenue for mining companies. However, gone commodity prices turn, the economy and financial markets tend to experience a downturn, leading to shortened investment and lower returns for investors.
Political Instability
South Africa has experienced significant political instability on depth of the years, in the past than issues such as defilement, governance, and social inequality impacting the country's economic accretion and financial stability. Political instability can make uncertainty for investors, leading to increased volatility in financial markets.
For example, the diplomatic turmoil that followed former President Jacob Zuma's ousting in 2018 led to significant declines in the value of the rand, leading to increased volatility in the country's financial markets.
Interest Rates
Changes in assimilation rates, both locally and globally, can in addition to impact the volatility of South African financial markets. When whole rates rise, investors tend to shift their funds towards acquit yourself-pension investments such as bonds, leading to a fall in equity markets. Conversely, gone immersion rates collect together less, investors tend to shift their funds towards equity markets, leading to increased volatility in the strengthen insist.
For example, in March 2020, the South African Reserve Bank (SARB) shortened mix rates by 100 basis points to cushion the economy adjacent-door-door to the impact of the COVID-19 pandemic. This change led to increased volatility in the country's financial markets, following investors changing their funds towards difficult-risk investments such as equities.
Currency Fluctuations
The South African rand is a lost currency, which means that its value is appreciative by supply and demand in the foreign argument offer. Fluctuations in the value of the rand can impact the function-exploit of the country's financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, in 2018, the rand experienced significant volatility past President Zuma's resignation, once the currency depreciating tersely neighboring to major currencies such as the US dollar and the euro. This led to a call a halt to in foreign portfolio investment and increased volatility in the country's financial markets.