RICARDO DA SILVA | Understanding market shocks: A Guide for the resilient South African investor

Another day, another headline, and another market jolt. Lately, this has become a regular feature of global financial markets, with South African investors caught in the crosswinds. From global trade tensions to local political uncertainty, markets can swing sharply in response to shifting narratives and breaking developments.

Beneath the surface of these market moves are what economists call ‘shocks’; unexpected events that trigger wide-reaching effects across economies and portfolios. So, understanding the different types — namely event, cyclical, and structural — is essential for navigating volatility and building a portfolio that can withstand uncertainty.

Event Shocks: Fast, loud, and disruptive

Event shocks are sudden surprises that jolt the economic system, forcing a rapid repricing of risk before the full impact is clear. These include tariffs, wars, pandemics, assassinations and natural disasters. US President Donald Trump’s tariff announcements are a classic example, disrupting supply chains, fuelling inflation concerns and shaking investor confidence overnight. When such shocks escalate, they can weaken company margins, hurt earnings and tip markets into a broader downturn.

While event shocks are unpredictable, investors can build resilience through diversification, holding cash or owning defensive assets like government bonds, gold, or consumer staples such as companies that sell essentials like food and healthcare products that stay in demand regardless of economic conditions.

It’s also important not to overreact to short-term market noise unless it points to a deeper shift with lasting consequences. We’ve seen how quickly markets can rebound once some uncertainty or trade tensions ease. However, that sharp recovery doesn’t mean the uncertainty is gone, it just means it’s changed shape.

Cyclical Shocks: The market’s natural downturn

Cyclical shocks are part of the market’s natural rhythm. They emerge during phases of economic slowdown, often marked by things like shrinking growth, tighter lending conditions or a spike in borrowing costs. While they tend to build up gradually, their effects can hit hard.

For example, in 2008, sub-prime debt wasn’t the “event” but rather it was a symptom of a broader credit cycle unravelling. So, what initially began as cautious investor sentiment or tighter lending set the stage for a much deeper and more widespread collapse.

Now looking at tariffs again, if companies cut back on investment or lay off workers in response, that then results in a trade shock becoming a cyclical one, resulting in consumer demand dips, a slowed GDP and increased recession fears.

The lesson? Don’t dismiss warning signs. Yield-curve inversions, climbing default rates and a cooling job market in the US aren’t background noise; they’re early alerts of mounting stress in the system. While they don’t guarantee an immediate downturn, they do signal the need for caution.

Structural Shocks: Slow-moving but transformational

Structural shocks are less about headlines and more about deep, long-term shifts in how economies function. Think AI, the energy transition or the rise of the internet. These changes unfold gradually but, once they hit a tipping point, can upend entire industries just as e-commerce disrupted traditional retail.

Right now, we’re living through one of the most significant structural shifts: AI. Since ChatGPT’s launch in late 2022, artificial intelligence has rapidly moved from concept to reality, transforming industries like finance, law, marketing, and software. As it evolves, many white-collar roles will be redefined in real time or even eliminated entirely.

Structural shocks are often accelerated by other shocks. Covid-19 didn’t create remote work, it cemented it. Tariffs may now push firms to rethink supply chains and reshape global trade for years to come.

Unlike event or cyclical shocks, structural changes don’t reverse. They permanently rewrite the rules. That’s why it’s critical to track slow-moving forces like regulatory shifts, tech breakthroughs or demographic trends before they reshape the landscape.

Building Resilience in a shifting world

Shocks aren’t just tests of the market, they’re tests of the investor.

In a world where the ground beneath our economies can shift overnight or slowly erode beneath our feet, the smartest portfolios aren’t built for predictions. They’re built for resilience.

South African investors don’t have the luxury of ignoring global tremors or local trembles. However, that’s not a drawback, it’s an advantage. Navigating constant noise sharpens your ability to manage uncertainty, turning it into a skill. In the long run, it’s not the boldest investor who wins. It’s the one who pays attention, adjusts early and stays in the game. The real question isn’t what the next shock will be but whether your portfolio is built to handle a world in constant flux.

• Ricardo Da Silva is the CEO of Webull Securities South Africa (Webull SA)