What South African investors should know about volatility

Citadel Global forex expert Bianca Botes addresses the market volatility faced by South African investors and its impact on the rand and offers insights to investors on how they can find opportunity amid adversity.

In the course of 2025, as global markets grappled with heightened uncertainty, South African (SA) investors faced an especially complex environment due to the sensitivity of the rand to global risk events. For investors, these elevated levels of volatility present both risk and opportunity, according to Bianca Botes, Director at Citadel Global.

“The SA rand remains one of the most sensitive emerging-market currencies, often reacting swiftly and sharply to global risk events. One recent example is the renewed trade tensions between the United States (US) and China,” says Botes.

“What these recent events highlighted is the need for more than just resilience. It demands a proactive, well-diversified strategy rooted in disciplined decision-making and long-term perspective.”

UNDERSTANDING THE RAND’S VOLATILE NATURE

The rand typically depreciates when global risk aversion rises - such as financial crises, geopolitical shocks or sudden changes in global monetary policy - when investors retreat from riskier assets to ‘safe-haven currencies’ like the dollar. The rand, which is seen as a “high-beta” currency, tends to weaken sharply as capital flows out of emerging markets and into safe-haven assets.

The rand is also a commodity-linked currency, meaning it is particularly sensitive to fluctuations in global commodity prices. During global volatility events, falling prices for gold, platinum and other key exports can exacerbate rand weakness.

“The rand’s behaviour is often compounded by SA’s dependency on commodity exports, which typically suffer in periods of global economic slowdown.”

Botes continues: “While domestic issues such as political uncertainty, policy direction and social unrest do play a role in the movement of the rand, much of the recent volatility in the rand has been driven by international forces, taking cues from the global backdrop of tariffs and geopolitical tensions.

Despite its vulnerability, the rand has demonstrated resilience, often rebounding once global risk appetite returns and capital flows stabilise. “However, the timing and strength of these recoveries can vary depending on both global and domestic developments,” says Botes.

THE INVESTOR RESPONSE: DISCIPLINE AND DIVERSIFICATION

“Investors and businesses in SA have long operated in an environment of uncertainty and volatility, which has fostered resilience and a degree of expertise in navigating risk,” notes Botes. “That said, much more can be done to actively manage this volatility. From an investment perspective, strategies such as offshore diversification and dynamic asset allocation can play a critical role in reducing portfolio sensitivity and improving risk-adjusted outcomes. For businesses managing currency exposure, particularly those importing or exporting goods and services, strategic currency hedging tools can also be deployed, including forward exchange contracts, currency options, swap structures and tailored risk management strategies designed to align with specific cash flow requirements.”

The key is to find value in market dislocation, says Botes. “Periods of volatility are not solely about defence, they can also present opportunities. Market dislocations, particularly in undervalued sectors or currencies, allow disciplined investors to enter quality assets at attractive prices and benefit from market rebounds. Emerging markets, including SA, are often valued at a discount, offering long-term growth potential.”

Botes concludes that it is prudent to invest across a wide range of sectors, including resources, financials, industrials and a variety of asset classes, as well as both local and offshore markets, to mitigate volatility. Strategies such as volatility targeting, dynamic asset allocation and the use of hedging instruments such as currency options and offshore diversification are increasingly available to SA investors who want to turn risk into opportunity.