Probably a structural change took place in South Africa around mid-1998, when the country was hit by a crisis through contagion from Indonesia and Russia. The government spent a considerable amount of foreign reserves in trying to defend the domestic currency but lack of success led to an abandonment of the policy of attempting to maintain a stable exchange rate. A stable exchange rate policy attracts bond flows, while equity investors prefer floating exchange rates, which stimulate competitiveness of enterprises in the host countries. The implication of this line of argument is the avoidance of a pegged or fixed exchange rate regime in the case of countries with large bond markets. Suggestions were made on the suitability of intermediate exchange rate regimes in some countries.
Volatility seems to be over-rated as a problem.
This is especially true if the issue is seen in light of maximising quantities and if one can get the right sort of capital. If quantity rather than volatility is considered, one gets a different answer. The suggestion made was to work at a joint measure, using volatility and quantity. Doubts about interpreting data for Europe into the USA for general conclusions. Therefore, even if it were true that equities are better than bonds, the choice would actually be between bond and FDI, and such a comparison might give a different answer.