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The Influence of Political, Economic, and Financial Risks on the South African Global Equity Portfolio Returns under Changing Market Conditions

Author

Listed:
  • Sandisele JAFFAR
  • Thomas HABANBAKIZE
  • Fabian MOODLEY
  • Paul-Francois MUZINDUTSI

    (University of KwaZulu-Natal
    University of Johannesburg
    North-West University
    University of KwaZulu-Natal)

Abstract

Country risk is one of major determinants of investors’ decisions in pursuit of diversification opportunities and equity portfolio returns maximisation. This study investigates the effect of disaggregated country risk on South African global equity portfolio returns under fluctuating market conditions. Markov regime switching model was applied monthly data from January 2000 to December 2019. The study findings revealed that the foreign equity portfolio market moves between inefficiency and efficiency. Implying that country risks impact equity portfolio returns in foreign countries and the latter changes with market conditions. The results also indicated that more equity portfolios stay in bear market for extended periods compared to the amount of time spent in bull market. In other words, foreign portfolio equity market has been dominated by declining returns over the sample period. Additionally, all the assessed portfolios were affected by the country risk components. Yet, political risk proved to have dominant effect on foreign portfolios than other risk components. Consequently, political risk cannot be diversified through investing in alternative foreign portfolios.

Suggested Citation

  • Sandisele JAFFAR & Thomas HABANBAKIZE & Fabian MOODLEY & Paul-Francois MUZINDUTSI, 2025. "The Influence of Political, Economic, and Financial Risks on the South African Global Equity Portfolio Returns under Changing Market Conditions," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 9(1), pages 48-71.
    • Handle: RePEc:trp:01jefa:jefa0080
    DOI: 10.1991/jefa.v9i1.a76
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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