The South African Volatility Index (Savi) has risen from a level of 27.62 at the beginning of September to a new high closing level of 45.47 on Friday last week, indicating steeply higher levels of uncertainty in the equity market.

The higher the volatility index, the greater the level of fear or uncertainty in the market, and the lower the index, the more complacency there is in the market.

The Savi measures the expected level of volatility in the local equity market over an upcoming 90-day period.

The Savi peaked previously at a closing high of 33.89 on January 28 this year and then dipped to 20.66 on May 22 and has been volatile ever since.

The Savi is based on emerging market equities and is thus likely to be more volatile than the Chicago Board of Option's Exchange's volatility index - the Vix.

World's fear gauge

The credit crisis, though, has seen to a far steeper incline in the developed world's fear gauge than the local one.

The developed world's fear gauge struck 19.430 on August 28, but ended last week at a far more fearful 69.95 – a more than tripling in the levels of fear.

The announcement of dramatic rescue action by the G7 is likely to soothe some concerns this week, but as concerns over the costs mount it could also have more negative repercussions, especially if credit problems persist.

The Vix was at its previous worst in March at 32.240 as credit concerns mounted globally.

Analysts have said that the difference between these two indices can reflect a "fear premium" between the first and emerging worlds, but current events appear to have reversed this premium in favour of a market like South Africa, which does not have weak banks or sub-prime credit as it was known in the US.

The Savi is gained from Top40 option prices.

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