Why Morgan Stanley Retained Nigeria In Its Bond Index


The last time we reported about this matter, it was clear Morgan Stanley was serious with its threats to delist Nigerian bonds and equities from its Morgan Stanley Capital International Index, MSCI.

But in a change of direction, the US-based investment bank countered its threats by suspending its decision to delist Nigerian bonds from its emerging markets index. Morgan Stanley had in February 2016, warned that if Forex controls and lack of critical reforms persist, it will be left with no choice than to shell the country’s bond holding from its index.

Analyst estimated that the value of Nigeria’s bond in the index is worth NGN 100 billion. This is a huge amout of investment that will leave Nigeria should the bank had gone ahead to delist Nigeria. Last year, JP Morgan delisted Nigeria from its emerging market bond index over the similar complaints.

Morgan Stanley however said, it will review stocks and equities in the holding and individually delist any item that does not meet its criteria.

However, activists and local investors have argued that the delisting could not have done much or no damage to the Nigerian capital market and or investment ecosystem as Morgan Stanley’s index is for short term investors looking for any market with the biggest loophole and or high returns to cash on.

Analysts at CSL brokers, a stock brokerage in  Nigeria have a similar but deeper opinion that Morgan Stanley might have no choice than to stay put. According to the CSL,

“In reality however, we believe that investors are massively underweight Nigeria and estimates of index-tracking money in the NSE have been put at around U$500 million. Daily equity market turnover in recent weeks has averaged around $7 million.”

“Once investors are out of the stock market, they would then have to face the even bigger challenge of converting the naira proceeds of these sales to forex. $500 million over 14 weeks would result in investors attempting to remit $35 million per week. Recently, the Central Bank of Nigeria has made around $180 million available to commercial banks on a weekly basis to meet total dollar demand from their clients.

“Based on the $35 million assumption above and assuming the CBN forex sales stay at current levels, foreign investors would theoretically apply for 20 per cent of total forex sales to commercial banks in the event of an exclusion from the MSCI index. We see it is as extremely unlikely that the CBN would be willing to grant foreign investors such a large proportion of overall forex available,”

We look forward to stocks and bonds that might get booted out of the index.

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