Morgan Stanley retains MSCI Nigeria Indexes on the MSCI Frontier Markets as it shelves reclassification exercise

The Morgan Stanley Capital International’s (MSCI’s) decision on the potential removal of the MSCI Nigeria Index from the MSCI Frontier Markets Index, which was delayed till now, has been settled as the MSCI announced at the weekend its decision to retain the MSCI Nigeria Indexes in the MSCI Frontier Markets Indexes.

To this end, the Nigeria market index would be removed from the review list for potential reclassification to standalone status. Equally, MSCI will no longer apply the special treatment for the MSCI Nigeria Indexes announced on April 29, 2016.

The decision to review Nigeria’s status to “Standalone”, from the Frontier Markets Index, came on the heels of the liquidity issues that plagued the country’s foreign exchange market.

Index review changes for the MSCI Nigeria Indexes will be announced together with the November 2017 semi-annual index review announcement on November 13, 2017.

The MSCI Nigeria Indexes were added to the review list for due to issues in the foreign exchange market leading to impairment in the ability of institutional investors to repatriate capital.

According to Morgan Stanley, the introduction of restrictions on foreign currency trading in the first half of 2015 as well as the huge scarcity of the green back resulted in a deterioration of market accessibility, necessitated the potential reclassification to standalone status in September 2016.

Consultations were therefore held with market participants and decision on the downgrade was fixed for Tuesday June 20, 2017.

MSCI however postponed its decision till November 2017, just as it increased the weighting assigned to Nigerian stocks in its Frontier Markets Index to 7.9 percent from 6.5 percent previously while the standalone decision pended.

But following the Central Bank of Nigeria’s (CBN) consistent supply of foreign exchange to the market, liquidity has improved significantly across the market’s major segments – the interbank, the newly introduced investors/exporters FX (NAFEX) window and the parallel market, the fate of the Nigerian index changed for good.

More specifically, and as part of the upcoming November 2017 Semi-Annual Index Review, MSCI will implement all index review changes, including changes in the number of shares (NOS) and foreign inclusion factors (FIF) that have been postponed since April 29, 2016.

These changes will be made for securities classified in Nigeria in the MSCI Nigeria Indexes and in indexes, which Nigeria is a component of. These include the MSCI Factor, Thematic, ESG and other relevant derived indexes. MSCI will also resume the regular implementation of corporate events effective immediately.

The MSCI Indexes are segmented by size, sector and geography, allowing for consistent global views and cross regional comparisons.

There are 16 Nigerian stocks in the index.

A total number of 14 funds worth $969 million currently track the MSCI Frontier Index according to data from Bloomberg.