Morgan Stanley Capital International Inc. (MSCI) – a leading provider of research-based indexes and analytics, has disclosed it will not implement changes as part of the November 2020 Semi-Annual Index Review (SAIR) for any securities classified in frontiers like Nigeria, Bangladesh, and Lebanon.
Also, the report highlighted in the context of the reclassification of Kuwait to the MSCI Emerging Markets Indexes, MSCI will apply a Limited Investability Factor (LIF) on securities in the equity universe of Bangladesh, Lebanon, and Nigeria – with the objective of keeping their weights unchanged in the MSCI Frontier Markets Index as of the price cut-off date for the November 2020 SAIR.
Michael Nwakalor, a Macroeconomist at CardinalStone Research, in a phone chat interview with Nairametrics, explained the decision, considering that Nigeria’s foreign exchange system remains unattractive to foreign portfolio investors, despite the bullish run presently prevailing.
“Due to market accessibility and liquidity concerns, the MSCI stated at the last index review that it would not increase the weighing of certain countries facing said challenges. Thus, the news comes as no surprise. The decision comes as Kuwait’s index has been moved from the frontier to the EM index.
Save for MSCI’s freeze, the move may have automatically triggered higher weighing for counties like Nigeria who remain in the frontier index and could aid the much-needed fund allocation to Nigeria. Clearly, a quick resolution to Nigeria’s FX quandary will be necessary to drive equity flows in the future as the country’s weighing is revisited.
What you should know
MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 45 years of expertise in research, data, and technology, it powers better investment decisions by enabling clients to understand and analyze key drivers of risk and return, and confidently build more effective portfolios.The MSCI Index is closely followed by foreign investors in determining emerging markets to invest in and stocks to select. For most investors, they are not allowed to invest in a country whose index is not included in MSCI. Nigeria remains in the frontier composition of the index