Global Risk Factors and South African Equity Indices

South African equity is frequently portrayed as a market requiring a high degree of local expertise – to appropriately understand its many idiosyncratic features – as well as intimate knowledge of its unique drivers – to prudently invest in the same. This claim is evidenced by the amount of research and effort devoted to understanding South African-specific economics, interest rates and risks. The aim of this research is to debunk this perception with a simple yet robust and highly replicable statistical model (best-subsets regression) for the majority of the traded South African equity indices. We show how the South African equity market is mostly a one-way mirror of a confluence of international factors, all arguable largely unrelated to South Africa. We discuss why these models are currently less useful than their longer-term predictive averages and note the current relevance of including implied volatility and interest rates as predictors.