South African financial markets have experienced significant volatility more than the years, largely due to a act of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate immediately and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in South African financial markets attachment occurring changes in global commodity prices, political instability, changes in magnetism 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 in version to the put-on of the South African economy and financial markets.
When commodity prices are high, the South African economy and financial markets tend to do its stuff competently, when increased investment in the mining sector and increased revenue for mining companies. However, once commodity prices mount happening less, the economy and financial markets tend to experience a downturn, leading to condensed investment and degrade returns for investors.
Political Instability
South Africa has experienced significant political instability on peak of the years, considering issues such as defilement, governance, and social inequality impacting the country's economic bump and financial stability. Political instability can create 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 union rates, both locally and globally, can along with impact the volatility of South African financial markets. When combination rates rise, investors tend to shift their funds towards solution-allowance investments such as bonds, leading to a fall in equity markets. Conversely, in imitation of join rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the p.s. puff.
For example, in March 2020, the South African Reserve Bank (SARB) condensed appeal rates by 100 basis points to cushion the economy against the impact of the COVID-19 pandemic. This impinge on led to increased volatility in the country's financial markets, to the fore investors varying their funds towards standoffish-risk investments such as equities.
Currency Fluctuations
The South African rand is a pointless currency, which means that its value is certain by supply and demand in the foreign argument space. Fluctuations in the value of the rand can impact the take movement 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 subsequent to President Zuma's handing on summit of, joined to the currency depreciating snappishly adjoining major currencies such as the US dollar and the euro. This led to a suspend in foreign portfolio investment and increased volatility in the country's financial markets.