April 8, 2016/Cordros

MSCI Inc. (“MSCI”), released a statement this morning, wherein it mentioned that as a result of the deterioration of foreign exchange market liquidity in Nigeria, it was closely monitoring the situation in the country with regards to market accessibility ahead of its upcoming Semi-Annual Index Review in May 2016.

The Nigerian All Share Index (ASI) is currently classified under MSCI Frontier Market index (MSCI FM) – an equities index which tracks large-mid cap stocks across 23 frontier market countries. Given Nigeria’s weighting in the index (11.77% as of March 31, 2016), a substantial amount of funds (est. US$1.5 billion/N295.5 billion) should be tracking local equities, however, given the quantum — US$561.47 million (N110.61 billion) — of net foreign portfolio outflows from the NSE since the CBN began limiting forex accessibility  since February 2015; we estimate that only a fraction of those funds are left in the domestic bourse.

Whilst we expect  sell-offs in the advent of Nigeria’s exclusion, we believe the impact will be muted as investor capacity to repatriate those funds is limited by the ongoing dollar liquidity challenges.

MSCI will announce its decision on the treatment of the MSCI Nigeria Indexes and other related indexes on or before April 29, 2016.

Nigerian equities composition  in  MSCI FM: