Impact of South Africa’s potential greylisting on the JSE
South Africa faces severe economic consequences if it gets greylisted by the Financial Action Task Force (FATF), but the Johannesburg Stock Exchange (JSE) will face the same downturn.
The FATF is the global money laundering and terrorist financing watchdog which sets standards to prevent illegal activities that harm society.
The FATF found that South Africa is exposed to laundering domestic and foreign crime proceeds from the region.
It is also exposed to terrorism financing risks associated with foreign terrorism, foreign terrorist fighters, and potential domestic terrorism.
South Africa is now at risk of being included in the FATF greylist unless they implement measures to address its deficiencies.
Standard Bank CEO Sim Tshabalala warned that being greylisted will cause the rand to weaken, inflation and interest rates will spike, and South Africa will become a financial pariah.
Tshabalala said being greylisted is worse than a downgrade by rating agencies, which South Africa cannot afford.
The threat of being greylisted is a concern for many South Africans who are invested in the JSE, but it may not affect the local stock market significantly.
Wayne McCurrie from FNB Wealth and Investments said although greylisting is a concern, the impact on the JSE will be limited.
“The JSE consists mainly of overseas companies and commodity companies that sell their products in US dollars,” he said.
“The effect on the JSE will be relatively marginal, outside of the banks and the retailers who will be hardest hit.”
McCurrie added that it would be similar to when South Africa’s sovereign credit rating was lowered to non-investment grade, also known as junk status.
“Before we were downgraded to junk status, many people warned that it was the worst possible thing that could happen,” he said.
“We have been in junk status for years, and life continues. The rand carried on, long bonds carried on, and everything else carried on,” he said.
He added that South Africa is a long way from being greylisted, with authorities taking action to strengthen the country’s financial compliance with FATF guidelines.
“I am optimistic that South Africa will not be greylisted, but if it happens, it will not be good news.”
