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Why incoming government should ensure Nigeria is not removed from frontier index – Expert

The Managing Director-Head of Strategy at EFG Hermes Research, Mr Simon Kitchen, has advised that among the many tasks awaiting Nigeria’s incoming administration would be to ensure that MSCI, the frontier index provider, does not remove Nigeria from its index.  

Kitchen stated this during his presentation at the NGX’s 2022 Market Recap and 2023 Outlook held in Lagos Wednesday. 

The MSCI Frontier Markets Index captures large and mid-cap representation across 28 Frontier Markets (FM) countries. The index includes 96 constituents, covering about 85% of the free float-adjusted market capitalization in each country. 

Plans to remove Nigeria: Kitchen stated that the MSCI has been considering whether to remove Nigeria from its frontier index for some months now but has deferred the removal until June 2023. 

He noted that among the many items for the incoming administration to deal with is to address the issue frontally to create more confidence in the local bourse. 

The task for the new administration: The new government in the first half of 2023 should ensure it solved the currency issue to prevent Nigeria from being removed from the frontier index to create more inflow in the Nigerian stock market from foreign investors because right now the inflow is limited. 

2022 performance: The Chief Executive Officer, of NGX, Mr Temi Popoola said that in 2022, the equities market performance was evidenced by the 19.98% increase in the NGX All-Share Index, which rose from 40270.72 to 51,251.06 just as the market capitalization also closed at a high of N27.92 trillion, up from N21.06 trillion the previous year. He said the total turnover of trades in 2022 improved by 27% from N916 billion to N1.16 trillion year-on-year from 2021. 

  • “Market participation was heavily skewed to the domestic investors. The Fixed Income market saw a slight uptick in turnover to N3.89 billion in 2022 from N3.53 billion recorded in 2021. This represents a 10.20% YoY increase. 
  • “The Exchange Traded Funds market capitalization increased from N7.35 billion in 2021 to N8.42Bn in 2022, representing a 14.56% increase in the market capitalization. Stanbic IBTC ETF 30 which tracks the performance of the NGX 30 index was the best-performing ETF in 2022, having begun the year at N68.5 and closed at N245, reflective of 257.66% returns. ETF transactions fell from N34.22 billion in 2021 to N211.02 million in 2022. This represents a 99.38% decline in ETF turnover”. 
  • “Altogether, this signalled a good year for the Exchange despite global macroeconomic headwinds,” Popoola added. 

Performance drivers: Popoola said the yearly performance can be attributed in part to the N4.3 trillion in listings recorded by NGX across Equities and Fixed Income markets. He said:

  • “These listings included the raising of N2.54 trillion of bond listings for the Federal Government of Nigeria, as well as equity listings totalling N1.35 trillion from companies such as BUA Foods Plc and Geregu Power Plc. 
  • “Corporate bond listings also contributed significantly to the Exchange’s performance, with a total of N364.78 billion raised through listed instruments such as Dangote Industries Plc’s N177.12 billion senior unsecured bonds, Lagos Free Zone Company SPV Plc’s N25 billion fixed rate infrastructure bonds and Ardova Plc’s N11.44 billion and N13.86 billion fixed rate senior unsecured bonds. NGX also listed FGN Multi-Tranche $4 billion Eurobonds which further demonstrated its diversity of offerings and its ability to attract a wide range of businesses looking to raise capital. 
  • “The value of these listings displays NGX’s commitment to positioning itself as a premier location for capital raising and formation, as well as its ongoing development efforts in the Nigerian capital market post its demutualization. The Exchange’s ability to facilitate a wide range of transactions and attract a diverse range of businesses highlights its position as a leader in financial market innovation and progress on the African continent.” 

Outlook for 2023: Speaking on the outlook of the market Popoola said NGX would take a flexible approach to strategy execution in 2023, doubling down on its 2022 achievements and expanding on several levers.  

  • “As you know, the NGX Technology Board Listing Rules were approved by the apex regulator, the Securities and Exchange Commission in December 2022. With this, we aim to drive more technology companies to the Exchange and deepen capital formation in the technology sector. Currently, we are in consultations with stakeholders in the sector and we are confident of securing a few big names within the year,” the CEO added while speaking at the event. 
  • “On strategic partnerships, we will be forging more with development finance institutions, and banks, both local and international to further develop the market. We aim to do more on trading where we improve data dissemination to attract a larger investor base, especially from the retail side. We will be using listings as a vehicle for meeting strategic aspirations as the new dispensation comes in through increased advocacy and engagement. 
  • “NGX sees sustainability as not just important but also a profitable frontier of its business and work is ongoing on developing a framework for certifications in carbon credits trading, pending regulatory approval. On the capital market’s digital transformation, the Exchange is working on USSD launch in collaboration with Telcos and Banks; unlocking the African Capital markets via payment integration with Afreximbank’s Pan African Payment Settlement System.”