The stock markets of the world’s developing economies are about to undergo a kind of a revolution.
As index provider MSCI Inc. prepares to carry out its annual review in June, some of the world’s biggest and best-performing equity markets — with assets totaling almost $9 trillion — are poised for reclassification.
Nigeria, Africa’s largest economy is struggling to restore investor confidence in its currency, has seen its benchmark stock index lose more than 30 percent in dollar terms over the past 12 months. MSCI is considering whether to downgrade Nigeria from a frontier nation to a standalone market.
Investors are giving a thumbs up for a foreign-exchange window that started in April, which allows them to repatriate funds or value their naira holdings at rates more closely aligned to the informal market. A U.S. exchange-traded fund focusing on Nigeria has seen inflows after the start of the new mechanism.
Investors are now making a case for MSCI to use the price of the naira on the window to value stocks instead of the tightly controlled interbank rate. BlackRock Inc., Allan Gray Ltd. and Frontaura Capital LLC have already started using the new rate.
“Using the official rate means that MSCI is overstating year-to-date performance of their Frontier Market Index by about 1 percentage point,” said Tom Egbert, an analyst at Frontaura. “MSCI should switch its valuation away from the official rate, which is now unobtainable and irrelevant to investors.”
Naija247news earlier reported that Morgan Stanley International Capital has increased the weighting assigned to Nigerian stocks to 7.9 percent from 6.5 percent previously in its frontier markets basket of equities.
The index designed to track and measure stock markets was rebalanced by Morgan Stanley on Thursday and new weightings take immediate effect.
The MSCI Frontier Market Index Nigeria comprises of 16 companies listed on the Nigerian stock exchange such as Nigerian Breweries, GTBank, Zenith, Nestle, Dangote Cement, Forte Oil, Seplat and FBN Holdings.
The MSCI report says there will not be any specific review changes for any securities in Nigeria in the MSCI Nigeria-specific index or composite index, based on the ongoing issues with the foreign exchange market.
Meanwhile, Nigeria’s status in the MSCI Frontier Markets Index remains under consideration for a ”Standalone” re-classification.