Strategy Note /

Nigeria ejection from MSCI FM looms

  • Nigeria has 4.7% and 7.2% weights in MSCI FM and FM 100 equity indices and may be ejected on 31 August

  • Since March 2020, low foreign exchange liquidity has inhibited repatriation and accurate marking to market

  • Modest impact on share prices: FX issues not new, remaining foreigners committed or trapped anyway, FM funds are small

Nigeria ejection from MSCI FM looms
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
24 June 2022
Published byTellimer Research

MSCI announced on 23 June a consultation to consider the ejection of Nigeria from its MSCI FM and FM 100 equity indices.

Nigeria has weights of about 4.7% and 7.2%, respectively. The consultation period ends on 31 August.

Since March 2020, low foreign exchange liquidity has inhibited repatriation and accurate marking to market to foreign investor positions in Nigeria equities.

MSCI Frontier Markets index: Nigeria potential ejection

The impact of an MSCI FM ejection on share prices in Nigeria may be muted by four factors:

  1. FX constraints are not new and have discoloured the investment case for years now (this MSCI consultation could have been initiated over two years ago).

  2. Most remaining foreigners, who have not exited via fungible dual local and overseas listings of Nigerian companies (eg Seplat, NewGold), are either very committed or trapped.

  3. Assets managed by dedicated FM equity funds are a pale shadow of where they were five or even 10 years ago – if there are US$2.5bn remaining in dedicated FM assets under management and 15% of this is passively tracking the FM or FM 100 indices, at an average Nigeria weight of c6%, if all of this was liquidated (assuming that is even possible given repatriation hurdles) then the sale of the resulting US$20-25mn of Nigeria equities would equate to about 2-3 days of average daily value traded.

  4. Among those FM funds that have survived years of outflows, several have abandoned the FM benchmark altogether (does it make sense for an FM fund to be benchmarked to an index where very high GDP per capita Iceland has a c9% weight?), or adopted benchmark indices which are broader (eg MSCI FEM) or more customised (eg including Saudi).

Nigeria equities, NGX All Share, are up 27% ytd. Trailing PB is 2.4x (for 19% trailing ROE), a nearly 50% premium to the 5-year median. Forward PE is 9.8x (for 26% earnings growth and 5.1% dividend yield), a 10% premium to the 5-year median.

Nigeria investment case reading

Eurobond: Nigeria: Upgrade to Buy after excessive sell-off (Curran), 21 June

Equities: Nigeria is top performing equity market, driven by locals not trapped foreigners (Ogunkoya), 19 May

Global EM and FM: EM equity strategy recap during the market rout, 17 June