Nigerian capital market operators said the decision to retain the MSCI Nigeria Indices in the Morgan Stanley Capital International (MSCI) Frontier Markets Indices would increase foreign investors and attract more investments into Nigeria.
Recall that the Central Bank of Nigeria (CBN) introduced the special window for investors, exporters and end-users of foreign exchange (FX) on April 21, 2017 as part of its efforts to deepen the FX market and accommodate all the FX obligations.
The market rebounded in April following the introduction of the window on April 21, 2017, the Nigerian stocks market investors’ investment has appreciated by N3.925 trillion.An analysis of the market’s performance after the launch of the FX window showed that the NSE All-Share Index rose by 45.86 per cent to close at 36,877.15, while market capitalisation gained N3.925 trillion to close at N12.763 trillion as at November 3, 2017.
Morgan Stanley Capital International (MSCI) announced that Nigeria stocks will remain part of its frontier index and are no longer under review for a possible demotion to a standalone status. The decision was hinged on improved FX liquidity in the Nigeria market, likely related to improved FX transactions at the “Investors and Exporters” (IE) window. The MSCI recently increased the weighting assigned to Nigerian stocks to 7.9 per cent from 6.5 per cent previously in its frontier markets’ basket of equities.
For context, MSCI had previously announced in June 2016 that it was considering Nigeria for a possible downgrade to stand-alone status, highlighting deteriorating FX liquidity as well as FX restrictions as key concerns. Consequently, the MSCI decision on whether to retain Nigeria in its Frontier market indexes in June, 2017, was postponed to ascertain the effectiveness of the IE window. Unequivocally, the MSCI’s decision to retain Nigeria in the Frontier index reflects the success and effectiveness of the IE window.
MSCI, is a leading provider of investment decision support tools worldwide, the MSCI Frontier Markets Index captures large and mid-cap representation across 29 Frontier Markets (FM) countries include: Argentina, Bahrain, Bangladesh, Burkina Faso, Benin, Croatia, Estonia, Guinea-Bissau, Ivory Coast, Jordan, Kenya, Kuwait, Lebanon, Lithuania, Kazakhstan, Mauritius, Mali, Morocco, Niger, Nigeria, Oman, Romania, Serbia, Senegal, Slovenia, Sri Lanka, Togo, Tunisia and Vietnam.
The MSCI Frontier Market Index Nigeria comprises of 16 companies listed on the Nigerian stock exchange such as Nigerian Breweries, Guaranty Trust Bank, Zenith, Nestle, Dangote Cement, Forte Oil, Seplat and FBN Holdings.
Market operators said this is a welcome and positive development considering that foreign portfolio investors who knew little about investing in Nigeria decided to invest because it is listed on the MSCI Frontier Market Index Nigeria.
The managing director of HighCap Securities Limited, Mr. David Adnori said that “It is a welcome and positive development because a lot of foreign investors rely on the information they gathered from those rating agencies to Influence their decisions to invest or divest from Nigeria capital market.”
According to him, the Nigerian capital market has a high content of foreign investors, this is a positive indication, and the implication is that it will increase demand for Nigerian stocks from a global investors. He pointed out that the CBN did what is needed in stabilizing the forex market.
The managing director of Dependable Securities Limited, Mr. Chinenye Anyanwu said the retention of Nigerian stocks on MSCI is a good development. He noted said that foreign investors’ appetite for Nigerian assets had waned significantly on the back of the currency crisis, which in turn had fundamentally weakened macroeconomic environment, dragged corporate earnings, and impacted negatively on the equities market, saying but with the commencement of the I&E FX window, investor sentiment has been strengthened.
He however said that I&E FX window, which signalled a possible return of flexibility in FX rate determination, though multiplicity of rates at the official window is still a concern.
Also, the chief executive officer, Finawell Capital Limited, Mr. Tunde Oyekunle said, “It is a good development for our equities market, considering the fact that a large number of foreign fund investors are taking position in the Nigerian stock market in the past few months.
He pointed out that Nigeria is becoming more popular among leading frontier funds and indices, saying that the obvious impact is that the percentage of foreign portfolio participation in our market, will likely increased.
Analysts at Cardinal Stone Limited added that “Sequel to the implementation of the window, foreign sentiments improved significantly towards Nigerian equities. Despite the uptick in foreign interest, a handful of foreign fund managers waited on the side-lines in anticipation of the final MSCI announcement. We believe this potential demand from these foreign investors as well as tactical local market participants will spur positive sentiments in the short term.
“With the reassurance that investors can complete their transactions at a market determined exchange rate, we expect to see further influx of capital into the equities market. Currently, foreign portfolio managers tracking the MSCI Frontier Market index allocates weights varying from 3.98 per cent to 4.99 per cent compared to the 7.96 per cent benchmark weight of the MSCI frontier index.”
They explained this implies that these fund managers are still significantly underweight, saying “We expect underweighted fund managers to rebalance their portfolios in favour of the Nigeria market. This will consequently improve sentiments and demand for Nigerian equities.”