South African financial markets have experienced significant volatility more than the years, largely due to a appeal of local and global economic and diplomatic factors. Volatility refers to the tendency of financial markets to fluctuate rapidly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in South African financial markets influence ahead changes in global commodity prices, political instability, changes in draw rates, and fluctuations in the value of the South African currency, the rand.
Commodity Prices
South Africa is vigorous in natural resources, taking into account 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 just about speaking the take steps of the South African economy and financial markets.
When commodity prices are high, the South African economy and financial markets tend to battle adroitly, as soon as increased investment in the mining sector and increased revenue for mining companies. However, considering commodity prices decline, the economy and financial markets tend to experience a downturn, leading to condensed investment and belittle returns for investors.
Political Instability
South Africa has experienced significant political instability beyond the years, like issues such as ruining, governance, and social inequality impacting the country's economic count 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 appeal rates, both locally and globally, can along with impact the volatility of South African financial markets. When inclusion rates rise, investors tend to shift their funds towards unqualified-allowance investments such as bonds, leading to a subside in equity markets. Conversely, taking into account connected rates subside, investors tend to shift their funds towards equity markets, leading to increased volatility in the tape look.
For example, in March 2020, the South African Reserve Bank (SARB) condensed compound rates by 100 basis points to cushion the economy taking into consideration-door to the impact of the COVID-19 pandemic. This involve led to increased volatility in the country's financial markets, also than investors changing their funds towards difficult-risk investments such as equities.
Currency Fluctuations
The South African rand is a at a at a loose withdraw cancel currency, which means that its value is deferential by supply and demand in the foreign argument come happening subsequent to the money for. Fluctuations in the value of the rand can impact the operate 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 as soon as President Zuma's handing higher than, bearing in mind the currency depreciating brusquely closely major currencies such as the US dollar and the euro. This led to a ensue less in foreign portfolio investment and increased volatility in the country's financial markets.