African emerging equity market returns are characterized by volatile, but substantial returns, which are affected considerably by varying degrees of liquidity cost ranging from 0.15 per cent in Morocco to 53.37 per cent in Tunisia.

This paper uses a unique panel of equity market indices from the principal Southern African Customs Union (SACU) markets. The paper tests the hypothesis of market integration using a cointegration approach. Markets that are found to be integrated are then tested for evidence of Granger causality through an error correction mechanism.

Two micro-markets, Mozambique and Swaziland, provide an interesting case study to examine the features of new markets in Sub-Saharan Africa that differ in a number of ways, including colonial legacy, membership of the Common Monetary Area and the dynamics of the political economy that defines the links between the citizens, the local elite and the state.

A case study of Swaziland and Mozambique illustrates that any potential gains to the domestic investment community are limited if the political economy does not allow the markets to develop sufficient liquidity.