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Do Geopolitical Risk and Market Conditions Drive JSE Sector Returns?

Author

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  • Thuto NKOMO

    (North-West University, South Africa)

  • Fabian MOODLEY

    (North-West University, South Africa)

Abstract

Although equity markets contribute immensely to economic growth, they are susceptible to various risks, including geopolitical risks. Despite this, emerging markets such as South Africa have failed to examine geopolitical risk as a determinant of equity market returns under various market conditions. On this basis, this study aims to investigate the effect of geopolitical risk on South African sector returns under changing market conditions from February 1996 to December 2023. This study introduces the Markov regime-switching model, and the findings demonstrate that geopolitical risk has a regime-specific effect on the Johannesburg Stock Exchange (JSE) sector returns. Moreover, regardless of the effect of geopolitical risk, the consumable goods and consumables services index performed well. This implies that the JSE aggregated market can be used to track the performance of these two markets. The study concludes that the JSE All-share, Consumable goods, and Consumable services indices could be investors’ safe haven during geopolitical tension and equity market uncertainty. However, investors and portfolio managers should be strategic when investing in the JSE industrials and mining indices because they are highly volatile and produce the lowest returns.

Suggested Citation

  • Thuto NKOMO & Fabian MOODLEY, 2025. "Do Geopolitical Risk and Market Conditions Drive JSE Sector Returns?," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(2), pages 324-341, June.
    • Handle: RePEc:rom:merase:v:10:y:2025:i:2:p:324-341
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    References listed on IDEAS

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    1. Damien Kunjal, 2023. "Does geopolitical risk matter for ETF flows in emerging markets?," Finance, Accounting and Business Analysis, University of National and World Economy, Institute for Economics and Politics, vol. 5(2), pages 102-112, December.
    2. Fabian Moodley & Sune Ferreira-Schenk & Kago Matlhaku, 2024. "Effect of Market-Wide Investor Sentiment on South African Government Bond Indices of Varying Maturities under Changing Market Conditions," Economies, MDPI, vol. 12(10), pages 1-22, September.
    3. Yang, Jianlei & Yang, Chunpeng, 2021. "The impact of mixed-frequency geopolitical risk on stock market returns," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 226-240.
    4. Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol & Kurowski, Łukasz & Smaga, Paweł, 2021. "Two decades of contagion effect on stock markets: Which events are more contagious?," Journal of Financial Stability, Elsevier, vol. 55(C).
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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