ABSTRACT
This study is set out to investigate foreign capital inflows and stock market performance in South Africa. The main aim of this study was to ascertain the effect of foreign capital inflows on stock market performance in South Africa, by employing various indicators such as market capitalization, all share index, foreign direct investment, foreign portfolio investment, remittances and overseas development assistance.
The data used for this study were sourced from the Johannesburg Stock Exchange annual report and South African Reserve Bank annual bulletin of various editions within the scope of the study, 2000-2019 (20 years). The study adopted the fully modified ordinary least square (FMOLS) for all the series employed, other preliminary tests like descriptive statistics, unit root test, co-integration test correlation analysis were also carried out. The study formulated two models; the first model adopts market capitalization (MCAP) as an indicator of stock market performance in South Africa while the second model adopts all share index (ASI) as an indicator for stock market performance in South Africa.
The findings of the study on the first model revealed that there is no significant relationship between foreign direct investment and stock market performance in South Africa; foreign portfolio investment has a significant effect on stock market performance in South Africa; remittances has a significant effect on stock market performance in South Africa and; overseas development assistance has no significant effect on stock market performance in South Africa. Furthermore, the findings of the study on the second model revealed that there is a significant relationship between foreign direct investment and stock market performance in South Africa; foreign portfolio investment has a significant effect on stock market performance in South Africa remittances has a significant effect on stock market performance in South Africa and; overseas development assistance have a significant effect on stock market performance in South Africa. The study recommends among others that home grown capital should play the lead role because of the risk of volatility and shock associated with foreign capital which may cause macro-economic instability in the host country.
