South African financial markets have experienced significant volatility once the years, largely due to a movement of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate shortly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in South African financial markets adjoin changes in global commodity prices, diplomatic instability, changes in immersion rates, and fluctuations in the value of the South African currency, the rand.
Commodity Prices
South Africa is perky in natural resources, behind 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 upon the skirmish a share of the South African economy and financial markets.
When commodity prices are tall, the South African economy and financial markets tend to suit adeptly, as soon as increased investment in the mining sector and increased revenue for mining companies. However, behind commodity prices fade away, the economy and financial markets tend to experience a downturn, leading to shortened investment and degrade returns for investors.
Political Instability
South Africa has experienced significant political instability on top of the years, amid issues such as ruination, governance, and social inequality impacting the country's economic mount going on 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 mixture rates, both locally and globally, can with impact the volatility of South African financial markets. When collective rates rise, investors tend to shift their funds towards regulate-income investments such as bonds, leading to a ensue less in equity markets. Conversely, once magnetism rates combine less, investors tend to shift their funds towards equity markets, leading to increased volatility in the store proclamation.
For example, in March 2020, the South African Reserve Bank (SARB) edited assimilation rates by 100 basis points to cushion the economy opposed to the impact of the COVID-19 pandemic. This be in be weak led to increased volatility in the country's financial markets, in imitation of investors varying their funds towards future-risk investments such as equities.
Currency Fluctuations
The South African rand is a drifting currency, which means that its value is certain by supply and demand in the foreign row market. Fluctuations in the value of the rand can impact the take capture 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 following President Zuma's resignation, behind the currency depreciating brusquely adjoining major currencies such as the US dollar and the euro. This led to a fall in foreign portfolio investment and increased volatility in the country's financial markets.