Faculty of Commerce, Law and Management (ETDs)
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Item Measuring the performance and asset allocation of robo-advisors in BRICS(University of the Witwatersrand, Johannesburg, 2024) Maluleke, Lethabo; Seetharam, YudhvirThe financial industry has undergone some digital changes over the past decade. Financial technology (FinTech) is a result of this digital change and robo-advisors constitute FinTech in the wealth management space. The emergence of robo-advisors is a global phenomenon and, in this study, the performance and asset allocation of the robo-advisors from Brazil, Russia, India, China, and South Africa (BRICS) were measured. BRICS countries are one of the largest growing economies and provide international investors with diversification. The purpose of this study was to analyse if the recommended portfolios of the robo-advisor can perform similar to a benchmark and to explain the performance differences between the different recommended portfolios of the robo-advisors from each country using a returns-based style analysis. Furthermore, this study analysed the performance of robo-advisors before and after considering fees and the returns-based style analysis was also used to capture the exposure of each robo-advisor to mutually exclusive asset classes. The data included four robo-advisors in total with one robo-advisor from each country (a total of 62 portfolios) as there was a removal of the Russian EFTs due to the Russian- Ukraine war of 2022. The sample period was from 2015 to 2022 as most robo-advisors only became available after 2015. The performance tests that were performed were the Sharpe ratio, Jensen’s alpha, Treynor ratio and Manipulation-proof performance measure. It is found that there are certain countries that have robo-advisors with portfolios that perform similar to the benchmark and do not outperform the benchmark and other countries that have portfolios that outperform the benchmark and the portfolios do not perform similar to the benchmark. Furthermore, it is found that performance differences can be explained by the investment style i.e., whether the portfolios have exposure to the same assets. The performance differences can also be explained by asset allocation in each portfolio based on uncorrelated assets.Item Potential improvements to South African research and development tax incentives: lessons from BRICS countries(University of the Witwatersrand, Johannesburg, 2024) Mphephu, Keamogetswe; Ram, Asheer J.The South African government is cognisant of the fact that research and development (R&D) is imperative in stimulating innovation, economic development, and global competitiveness. This has resulted in the government adopting various tax incentives to boost R&D activities. Section 11D of the Income Tax Act 58 of 1962 (Income Tax Act) (Republic of South Africa, 1962) governs the R&D tax incentive, which has evolved since its inception in 2006. The initial plan was for section 11D to come to an end in October 2022. However, in the 2023 Budget Speech, the Minister of Finance declared an extension of ten years for the deadline and simplification of the tax provision to enhance effectiveness. This study will analyse South Africa's R&D tax policies in comparison to selected other BRICS member countries (Brazil, Russia, India, China) and examine possible improvements. Through the research study, several important findings were made. One is that R&D tax incentives play a crucial role in stimulating innovation investment by relieving the financial burden on companies and therefore allowing them to focus their resources on R&D. Another important lesson is that streamlining application procedures and providing convenient access to R&D tax incentives play a critical role in promoting high levels of participation and effectiveness. Although the Department of Science and Innovation has taken steps to enhance R&D tax incentives, there remains room for improvement to align them with international best practices. Aligning with international best practices will enable South Africa to improve its R&D tax provision by encouraging innovation and attracting domestic and foreign investment.Item Performance of mutual funds in emerging markets(University of the Witwatersrand, Johannesburg, 2024) Motaung, Naledi MolepaThis study delves into the dynamics of mutual fund performance within the BRICS economies, underpinned by theoretical frameworks like Modern Portfolio Theory and the Mutual Fund Theorem. The study aims to provide a comprehensive examination of mutual fund architectures, classifications, and their inherent advantages, alongside the diverse factors shaping investment choices. The study further aims to assess and juxtapose the effectiveness of BRICS mutual funds, by deploying established measures such as Jensen's Alpha, Sharpe ratio, Treynor ratio, and the Fama-French and Carhart factor models. These measures facilitate a deeper comprehension of returns, especially when comparing portfolios with analogous risk profiles, underscoring the diverse sources of returns. The findings indicate that Chinese mutual funds are distinguished by superior risk- adjusted returns over a period of one to five years, signifying a more proficient market. The Fama-French three factor model regression results exhibited a positive correlation between market activity and returns, with Indian funds showing heightened market sensitivity. While the Carhart model introduces momentum as a novel component, its contribution to explaining mutual fund performance is minimal. The models' limited R- squared values imply the existence of additional influential factors not encapsulated by both the three and four factor models. The juxtaposition of performance measures and factor models exposes a consistent theme of market sensitivity and risk-adjusted performance, albeit with misalignment due to their measurement of different risk dimensions. Notably, the Emerging Markets Four-Factor Model emerges as a more refined tool, offering an enhanced comprehension of the forces driving performance in BRICS, potentially reconciling the disparities observed with the more traditional performance metrics. Overall, the research contributes to the understanding of mutual fund performance in emerging markets, particularly in the BRICS economic bloc. It highlights the opportunities and challenges faced by investors and provides insights into the factors that influence mutual fund returns in these dynamic and diverse markets.Item Currency Volatilities of BRICS Countries: The Impact of Commodity Prices, Interest Rates and Geopolitical Risks(University of the Witwatersrand, Johannesburg, 2024) Luo, Heng; Odei-Mensah, JonesCurrency volatility in emerging markets is an interesting topic for managers, investors, and regulators. This study investigated the currency volatility of the five BRICS nations, examined the risk sources of the BRICS currencies and observed the connectedness of their currency risks, in the context of the COVID-19 pandemic, Russia-Ukraine war and current interest rate hikes, using data spanning between September 2011 and September 2023. The ARDL model was the main econometrics approach applied for identifying the long run and short run currency volatility determinants. In addition, Quantile Regression was adopted to observe the currency markets’ tail behaviours. The research has three major findings. Firstly, the research confirmed that interest risk, commodity risks, geopolitical risk, and economic policy uncertainty are the risk sources of BRICS nations’ currencies, especially when volatilities are at high levels. Additionally, the research provided support for spillover of the commodity market, the USA’s geopolitical risks and economic policy risks to the BRICS’ currency markets, and the volatility spillover across BRICS currency markets. Finally, the study revealed the shock evolution trend of Chinese RMB, with accelerating impacts of US geopolitical risk, US and home economic policy risk, and oil price exposure on RMB’s volatility. Overall, the heterogeneity of BRICS nations’ currency markets responding to external shocks, and the asymmetry of the connectedness of BRICS currency markets, were important implications of the research. The findings are crucial for investors and policy makers.Item The impact of foreign ownership on emerging markets' banking system: a case of BRICS(University of the Witwatersrand, Johannesburg, 2022) Magagula, Sibusiso Vusi; MOKOALELI-MOKOTELI, ThabangThe current research examines foreign bank ownership’s impact on the financial soundness and benefits observable within-host banking markets and banks’ risk-taking behaviour in the BRICS. Also, this research examines the effects of foreign ownership on both fiscal and monetary policies’ transmission via the bank lending channel. Thus, the rationale to focus on the impact of foreign ownership on BRICS member countries’ banking markets is because post-global financial crisis, these economies stimulated their economy via banking. Moreover, the effects of the global financial crisis of 2008 did not lead to deglobalisation in their banking markets because, generally, the BRICS bloc is found to have recovered quickly from the situation without their banks changing their privatisation strategy concerning foreign ownership. The CAMELS rating analysis, two- stage least square and two-way random effect panel models are the primary study tools in the current research, and the biasness testing was incorporated as a robustness check. The results show that the foreign-owned banks contribute procyclically to the bloc's financial soundness, indicating that their presence introduces some asymmetries into their banking systems. Furthermore, foreign banks in BRICS lead to benefits that outweigh risks. However, some risk elements need to be minimised to insulate the bloc from a future globally induced crisis. These risks include systemic risk of foreign-owned banks, lowering tier II capital as required by Basel III for all banks, the ineffectiveness of fiscal and monetary policy in regulating lending risk, and excessive leveraging of domestic banks. Despite the risks associated with foreign banks' presence in BRICS, foreign bank ownership increases the performance and efficiency of all banks, with domestic banks becoming risk-averse, which may explain the quick recovery of the BRICS banking sector post-2008 global financial crisis. The policy implications from the results highlight the need for local policymakers to strategies on ways to encourage banks to lend in domestic currency to regain control over lending risks post-acquisition of their host banks by global investors. Also, host regulators need to closely monitor the extent of systemic risk from foreign-owned banks to limit the chance of a banking crisis in the future.Item The impact of foreign ownership on emerging markets' banking system: a case of BRICS(University of the Witwatersrand, Johannesburg, 2022) Magagula, Sibusiso Vusi; MOKOALELI-MOKOTEL, ThabangThe current research examines foreign bank ownership’s impact on the financial soundness and benefits observable within-host banking markets and banks’ risk-taking behaviour in the BRICS. Also, this research examines the effects of foreign ownership on both fiscal and monetary policies’ transmission via the bank lending channel. Thus, the rationale to focus on the impact of foreign ownership on BRICS member countries’ banking markets is because post-global financial crisis, these economies stimulated their economy via banking. Moreover, the effects of the global financial crisis of 2008 did not lead to deglobalisation in their banking markets because, generally, the BRICS bloc is found to have recovered quickly from the situation without their banks changing their privatisation strategy concerning foreign ownership. The CAMELS rating analysis, two- stage least square and two-way random effect panel models are the primary study tools in the current research, and the biasness testing was incorporated as a robustness check. The results show that the foreign-owned banks contribute procyclically to the bloc's financial soundness, indicating that their presence introduces some asymmetries into their banking systems. Furthermore, foreign banks in BRICS lead to benefits that outweigh risks. However, some risk elements need to be minimised to insulate the bloc from a future globally induced crisis. These risks include systemic risk of foreign-owned banks, lowering tier II capital as required by Basel III for all banks, the ineffectiveness of fiscal and monetary policy in regulating lending risk, and excessive leveraging of domestic banks. Despite the risks associated with foreign banks' presence in BRICS, foreign bank ownership increases the performance and efficiency of all banks, with domestic banks becoming risk-averse, which may explain the quick recovery of the BRICS banking sector post-2008 global financial crisis. The policy implications from the results highlight the need for local policymakers to strategies on ways to encourage banks to lend in domestic currency to regain control over lending risks post-acquisition of their host banks by global investors. Also, host regulators need to closely monitor the extent of systemic risk from foreign-owned banks to limit the chance of a banking crisis in the futureItem Analysis of tax relief measures as a result of the covid-19 pandemic in south africa, compared with the tax measures of other members of the brics group(University of the Witswatersrand, Johannesburg, 2023) Selemela, Elsie; Ram, Asheer J.The purpose of this report is to analyse tax relief measures that were taken as a result of the COVID-19 outbreak in South Africa, evaluate the approach taken and compare it with other countries in the BRICS international organisation. The COVID-19 pandemic caused numerous company closures and employment losses (IMF, 2020). Governments worldwide had to intervene to support their citizens and keep businesses afloat (IMF, 2020). In order to maintain widespread access to essential goods and services, taxation is crucial (IMF, 2020). The dire effect on economic activities around the world influenced tax laws (IMF, 2020). It fell to tax administrators to ease the tax burden on taxpayers as they were facing hardships (OECD [Organisation for Economic Co operations and Development], 2020). The International Monetary Fund (IMF) states that the design of tax systems can help stabilise economies when faced with crisis (IMF, 2020). The South African government implemented tax relief measures because of COVID-19, although taxpayers are still experiencing the detrimental effects of COVID-19. It is the government’s wish to offer additional help to businesses and individuals who are still facing these hardships and also assist in rebuilding businesses (SARS, 2021). This report will look at tax measures that were taken by South Africa in comparison to those that were taken by Brazil, Russia, India and China to determine the usefulness of these measures in dealing with the effects of COVID-19 on taxes. Some measures were introduced for a short time and therefore are no longer applicable, but it is important to consider them in this report because they might have long-term effects on taxes. The findings of this analysis indicate which measures were used, when they were implemented, and how taxes in the BRICS countries changed while adjusting to COVID-19. It was found that tax policies put in place in South Africa were unjustified since they decreased tax collection without any measures in place to boost it (IMF, 2020). Examining what other BRICS nations were doing to increase tax collection during the COVID-19 outbreak can help identify areas for improvement.Item Stability of banking systems in BRICS countries: state vs. private bank ownership(University of the Witwatersrand, Johannesburg, 2022) Suchkov, Ivan; Mthanti, ThantiIn today's global business environment of cutthroat competition and continuous innovation, companies need to constantly reinvent themselves in order to stay ahead. As Arthur Martinez, Chairman and Chief Executive Officer of Sears, said just over a decade ago, "If you look at the best retailers out there, they are constantly reinventing themselves." (Greenwald, 1996, p. 54) Some 18 years ago, Jim O'Neill introduced the term “BRIC countries” (Brazil, Russia, India, and China) that ever since has been entrenched in the common language of economists around the world. At that time, the joint BRIC’s GDP in PPP terms constituted $9,668 bln. or 23.3% of world GDP (O’Neill, 2001). This club of four emerging economies that were grouped according to their economic growth potential and uprising global influence was joined by South Africa in late 2010. In the decade following the Global Financial Crisis (GFC) of 2008, the contribution of BRICS countries to world economic growth is known to have exceeded nearly 50%, and these countries will outrun the developed economies in terms of annual economic growth figures by 2030 (Kose & Ozturk, 2014). During the last two decades the trade turnover of BRICS countries has approximately tripled, which is a clear sign of an increased magnitude of their role in global trade flows (Rasoulinezhad & Jabalameli, 2018).Item Contagion between developed and emerging markets(2020) Bhagwandin, AsheenThis study examines the existence of contagion effects between the developed global economy and the BRICS economies (Brazil, Russia, India, China and South Africa) through the examination of linkages between global risk shocks and these markets. A structural vector autoregressive model with block exogeneity restrictions was estimated using macroeconomic and financial data for the BRICS markets and United States data (specifically the Volatility Index and the Federal Fund Rate) as proxies for global risk, all of a monthly frequency. Our primary findings are that contagion effects are present in exchange rates (besides China), sovereign credit default swap spreads and equity prices of our emerging domestic markets as a response of these variables to global risk shocks, although the magnitude of these effects varies by variable type and country. We do not observe significant responses to global risk shocks in government bond yields (besides Russian bonds) and exchange rates, and are thus unable to conclude, from our analysis, whether contagion effects affect these emerging market variables.Item Efficiency of emerging forex markets during the American and European quantitative easing periods(2020) Stevens, DarionThis research report investigated the efficiency of BRICS country foreign exchange markets during the American and European Quantitative Easing (QE) Periods. Market efficiency tests included autocorrelation, unit root, variance ratio, co-integration, and uncovered interest parity (UIP) testing. UIP tests indicated that the currency pairs investigated are not strong form efficient and that market efficiency diminished for US cross pairs during QE. The research also highlights changes in efficiency state prior to and post QE for the cross-pairs studied.