The Bad: 85% Chance of Grey

A new research report commissioned by Business Leadership SA revealed that there is an 85% probability that South Africa might end up in the crosshairs of the Financial Action Task Force (FATF) in February 2023. The FATF acts as an international crime watchdog which enforces the greylisting of countries that lack housekeeping with respect to anti-money laundering and combatting terrorism financing measures.

Foreign countries and institutions will likely attach a higher level of risk to South African companies and individuals, making it increasingly difficult for SA retail investors to invest offshore. Furthermore, greylisting could have a negative impact on capital flows, which would subsequently influence the Rand and local equity and bond markets over time. To reverse the decision, SA will need to make a concerted effort to address the FATF’s concerns. However, it is possible to be cleared within a relatively short time period, as Mauritius was taken off within two years of being flagged.

There is an argument to be made that much of the impact has already been priced into our markets, considering the ZAR is down -15.6% YTD relative to the USD (although it is important to note that the Dollar has been historically strong this year against all currencies). This also highlights the importance of feeder funds, which are Rand-denominated instruments that invest in foreign currency assets – High Street offers these feeder fund options for our Global Balanced and Wealth Warriors Funds.