fbpx

Nigeria Could Be Kicked Out Of The MSCI Frontier Markets Index

Nigeria Could Be Kicked Out Of The MSCI Frontier Markets Index

By Daniel Salter (Head Of Equity Strategy At Renaissance Capital) | From How We Made It In Africa

MSCI have announced they are considering removing Nigeria from the MSCI Frontier Markets Index given restrictions on currency trading and the resulting deterioration of FX liquidity impacting investors’ ability to repatriate capital. This is a risk we’ve been highlighting for the last six months or so (see below) so shouldn’t come as a complete surprise, and JPMorgan and Barclays have already removed Nigeria from their respective local currency emerging market bond indices.

MSCI plans to announce its decision on or before 29 April – and in the meantime is seeking feedback from investors.

There are four similar examples that spring to mind – Malaysia (1998), Egypt (2013), Greece (2015) and Ukraine (2015):

In Malaysia and Ukraine, MSCI did take action:

Malaysia – on 4 September 1998, MSCI announced that Malaysia (which was, unusually, included in both MSCI World and MSCI Emerging Markets at the time) would be removed from MSCI World effective 30 September, following the introduction of drastic repatriation restrictions on 1 September. In addition, on 28 September, MSCI announced that Malaysia would also be removed from the MSCI Emerging Markets Index as of the close of 30 November. Following the lifting of capital controls, Malaysia was re‐introduced to the MSCI Emerging Markets Index (only) on 1 June 2000.

Ukraine – on 28 May 28 2015, MSCI announced that the Ukraine would be excluded from the MSCI Frontier Markets Index following the introduction on 3 March by the National Bank of Ukraine of restrictions on capital flows prohibiting the repatriation of funds received from equity sales and dividends. The reclassification was implemented as part of the August 2015 Quarterly Index Review.

In Egypt and Greece, MSCI took no action:

Greece – which imposed capital controls (and closed the stock market) in late June. MSCI guided that a closure of less than 40 consecutive business days would not lead to any action. The market reopened within that time frame, and Greece remains part of the MSCI Emerging Markets Index.

Egypt – where in mid-2013, MSCI highlighted the shortage of foreign currency on the domestic foreign exchange market, and the potential launch of a public consultation with investors on a potential exclusion of Egypt from the MSCI Emerging Markets Index should the situation worsen, resulting in the inability of international investors to repatriate their funds. In mid-2014, MSCI announced that they were no longer considering launching such a consultation given the increase in Egypt’s reserves and improvements in foreign investors’ ability to repatriate capital, and Egypt remains part of the MSCI Emerging Markets Index.

Read more at How We Made It In Africa