COVID-19 pandemic and stock market linkages in Southern African Customs Union: a volatility spillover analysis

Why these markets matter in a global crisis

When COVID-19 swept across the world, it did not just threaten lives; it also jolted financial markets in every region. In Southern Africa, a little-known group of closely connected countries—Botswana, Eswatini, Namibia, and South Africa—saw their stock exchanges buffeted by the pandemic shock. This article examines how these markets moved together, or apart, before and during COVID-19, shedding light on how crises can tighten financial linkages and alter the risks faced by investors, pension funds, and policymakers in a whole region.

A region tied together by trade and money

The Southern African Customs Union is the world’s oldest customs union and links five neighboring countries through shared trade rules and, for four of them, a common monetary arrangement. Yet their stock markets differ sharply in size and activity. South Africa’s exchange is one of the continent’s giants, Namibia and Botswana host mid-sized markets, and Eswatini’s is very small with few listed companies and thin trading. Economic integration and a shared currency link some of these countries in everyday commerce, but the extent to which their stock markets actually move together—especially in turbulent times—had not been carefully measured before this study.

How the study tracked market connections

To understand these relationships, the author analyzed both monthly and daily stock index data from 2010 to early 2021 for Botswana, Eswatini, Namibia, and South Africa. The time span was split into a calm pre-pandemic period and the COVID-19 period, starting in early 2020. Simple correlation measures were used to capture how closely market returns moved together on average. To dig deeper into how sudden jumps and swings in one market affected others, the study applied a widely used volatility model that can track how turbulence in one place spills over to others over time. This allowed the author to distinguish between quiet-times linkages and crisis-time contagion.

Calm before the storm: weak ties in normal times

Before COVID-19, the picture was one of mostly loose connections. Eswatini’s tiny market showed virtually no relationship with any of the others, likely because limited trading and few listed firms kept it insulated. Botswana’s market displayed only a weak tie with Namibia and none with South Africa. The standout pair was Namibia and South Africa: their returns were strongly aligned, reflecting close economic, historical, and financial ties. Volatility analysis confirmed this pattern. Turbulence tended to spill in one direction from Botswana to Namibia and flowed both ways between Namibia and South Africa, while Botswana and South Africa remained largely separated. For investors, this meant that, outside crises, spreading investments across these markets could still provide some risk reduction, especially by avoiding over-concentration in the tightly linked Namibian–South African pair.

When crisis hits: turbulence binds markets together

The onset of COVID-19 changed this landscape dramatically. Returns became more skewed toward losses, and large price swings became more common across the region, a sign that investors were confronting new and uncertain risks. While simple correlations did not always surge as much as expected, the volatility model revealed a far more connected system beneath the surface. During the pandemic period, shocks and turbulence no longer stopped at national borders: volatility now spilled back and forth between Botswana, Namibia, and South Africa in all directions. In other words, the region’s markets moved from patchy linkages in normal times to a tightly woven web of two-way contagion during the crisis.

What this means for risk and policy

For non-specialists, the main message is that in quiet periods, SACU stock markets offer some room for spreading risk, but in a severe shock like COVID-19 they start behaving much more like a single, intertwined system. When fear rises and prices swing wildly, trouble in one market can quickly echo across others. This has two key implications. Investors cannot assume that regional diversification will protect them in a crisis, and regulators must plan for shared vulnerabilities rather than treating each exchange in isolation. The study suggests that better regional coordination, stronger safeguards against market turmoil, and close monitoring of cross-border spillovers will be essential to soften the impact of future pandemics or financial shocks on savers and economies throughout Southern Africa.

Citation: Emenike, K.O. COVID-19 pandemic and stock market linkages in Southern African Customs Union: a volatility spillover analysis. Humanit Soc Sci Commun 13, 351 (2026). https://doi.org/10.1057/s41599-026-06584-7

Keywords: COVID-19, stock markets, Southern Africa, financial contagion, volatility spillover