UPDATE on South African Market News

EFFECTS OF GREY LISTING

How will grey listing affect you and your investments

As expected, South Africa was grey listed last week Friday by the Financial Action Task Force (FATF) following its annual meeting. In its announcement, the FATF acknowledged the significant progress South Africa has made since the June 2021 and further provided an overview of its remedial action plan along with recognition of our political commitment to addressing these issues.

While the impact of being placed in the grey list will depend on how long we remain on it, South Africa has committed to addressing the remaining eight highlighted areas of deficiency by no later than January 2025.

WHAT ARE THE IMPLICANTIONS?

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Government have taken action into increasing investigations into money laundering and terrorist financing as well as monitoring controls. Being grey listed may therefore have negative consequences on our economy, markets, and currency due to increased oversight and controls as well as the impact on investors’ confidence. The added cost of increased oversight and administrative burden may be incurred by banks, asset managers and financial institutions which will ultimately be passed on to the consumer.

The potential of reduced foreign investments and flows has knock on effects for the country’s currency as well as economic growth and development. The sentiment that comes from being grey listed may limit access to global markets and trade. That being said however, there are a number of reasons to remain optimistic and stick to your investment strategy as outlined below. 

 

 

WHAT DOES IT ACTUALLY MEAN?

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When added to the grey list, a country is under increased scrutiny by the FATF which is an organization founded to combat money laundering and the financing of terrorism. South Africa was added to the list because of deficiencies identified within its systems and procedures as they relate to such money laundering and terrorist financing activities.

There remain 8 areas of deficiency such as ‘risk-based supervision of identified risks’, ‘accurate and up to date beneficial ownership information by competent authorities’ and ‘improving the investigation and prosecution of activities related to money laundering and the financing of terrorist activities’.

Being on this list, signals to the Global Community that there is an increased risk of money originating from South Africa being used to support such prohibited activities.

WHAT IT MEANS FOR MY INVESTMENTS

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Given the high regard and long-standing relationships of our private sector companies and the global dependance on our raw materials, the expectations are that grey listing will not seriously impede foreign investment in South Africa. Although news of being placed in the grey list will impact sentiment and business confidence, this appears to have already been a forgone conclusion and priced into the market ahead of Fridays announcement. Further to this, the major credit rating agencies have noted that the grey listing is unlikely to result in further credit downgrades.

We believe that now is not the time to make decisions based on emotion and perceived risk. We continually seek to diversify our clients from the concentrated risk of South African asset classes. Given the increase in offshore exposure last year within regulation 28 portfolios, there has been a natural shift to increased offshore exposure and diversity opportunities. If you feel that this is something you would like to discuss further please feel free to contact us so that we can arrange a meeting.