Nigeria is receiving a large influx in foreign portfolio flows in spite of investors’ unease following the terror campaign of Boko Haram, after a closely-tracked index provider increased significantly the weighing of Africa’s largest economy, reports Financial Times.
MSCI, whose indices are followed by billions of US dollars from institutional investors, has lifted the weight of Nigeria’s equity market on its popular MSCI Frontier markets to about 19 percent, up from 12 percent previously.
The increase is channelling about $200 million in fresh foreign flows on top of further domestic flows, driving the Lagos-based stock market to a four-month high.
Nigeria, Africa’s largest oil producer, is one of the most liquid frontier markets, attracting billions of dollars in foreign portfolio flows into its local equity and bond market. But investors have recently been put off by growing insecurity and the suspension earlier this year of the country’s well-regarded central bank governor, Lamido Sanusi. Analysts estimate that foreign holdings of Nigerian equities and local-currency T-bonds and T-bills fell this year 25 percent to $17 billion.
The re-weighting appears to have reversed the outflows. The Nigerian Stock Exchange All-Share Index (NSE-ASI) hit a four month high this week, reversing all the losses triggered by the Boko Haram attacks and Sanusi’s suspension. Boko Haram gained international notoriety with the abduction of more than 200 teenage schoolgirls in April. Over a five-year insurgency, its attacks have killed 12,000 people.
The MSCI-inspired gains dishave left the Nigerian main equity index roughly flat since January, following a 45.6 percent gain in 2013 and a 37.3 percent rise in 2012.
The biggest gains had been for Forte Oil, a local energy group, and Ecobank Transnational, one of the biggest pan-African lenders. Both had been included for the first time in the MSCI frontier index. Forte Oil rallied 85.9 percent in May, while Ecobank rose 26 percent. Nigerian blue-chips, including Guaranty Trust Bank, Nigerian Breweries and Zenith Bank, have risen strongly over the last month as investors bought them in anticipation of the MSCI re-weighting.
The annual re-balancing of the index – triggered after the United Arab Emirates and Qatar were upgraded from “frontier” to “emerging market” status – has sharply increased trading volumes in Lagos, with shares worth more than $70 million changing hands on the exchange on Friday, triple the usual level, brokers said.
The fresh foreign portfolio flows will help the Nigerian central bank to stabilise the exchange rate of the local currency, the naira, against the dollar. The currency suffered earlier this year after the suspension of Sanusi, forcing the bank to intervene heavily in the market. Hard currency reserves had fallen from about $50 billion in mid-2013 to roughly $37 billion recently as the central bank intervened.
Following the re-weighting, Nigeria is the second-largest constituent in the MSCI frontier index after Kuwait. The index is tracked by $6 billion in institutional money. Besides Nigeria, Kenya will also benefit from the MSCI re-weighting, with the Nairobi Securities Exchange accounting for nearly 5 percent of the index, up from 3 percent.