Abstract
South Africa is an emerging market economy with business relationships with other economies across the world. According to OEC (2019), South Africa exported over US$108 billion products to the rest of the world and imported US$81.9 billion in 2017. About forty percent of this import originated from the main trading partners; these include China, United States, Germany and United Kingdom. Considering the combined volume of exports to and imports from these economies, it is evident that there is an economic linkage between them and South Africa. In order to further understand the effect of this linkage, the stock market indices of the markets are used to analyse the relationship between these economies and the economy of South Africa. The purpose of this study is to assess the level of dependence of the South African equity market with some of its key business partners thereby introducing a mixture of emerging and advanced markets in order to explore diversification potential. The objectives include investigating the dependence relationship between the South African equity market as well as the equity markets of its trade partners and to determine whether there is any benefit to diversification. These are intended to solve the problem of finding out any possible dependence in the markets and if so, determine if there is any diversification potential. This study uses the equity markets of South Africa, the United Kingdom, United States, Germany and China. The results show positive dependence for all the markets, with South Africa and UK having the strongest dependence, followed by South Africa and Germany. The lowest dependence of the South African market is with the United States. The dependence between South Africa and China is also positive but less than that of the European countries. For all pairs, the dependence parameters are significant at the 5% level. This shows a high degree of dependence among the analyzed pairs...
M.Com. (Financial Economics)