Journal of Economics and Financial Analysis, 9 (1), pp. 48-71, [2025]
URI: https://ojs.tripaledu.com/jefa/article/view/104/110

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


University of KwaZulu-Natal, South Africa


University of Johannesburg, South Africa


North-West University, South Africa


University of KwaZulu-Natal, South Africa


DOI: http://dx.doi.org/10.1991/jefa.v9i1.a76

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.

Keywords

Country Risk; Equity; Market Conditions; Markov Switching Model.

JEL Classification

E44, G15, G41.

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