Nigeria, Others Face New Era as MSCI Review Looms

• Nigeria, Others Face New Era as MSCI Review Looms

The stock markets of the world’s developing economies including Nigeria are about to undergo a kind of a revolution.

As index provider MSCI Inc. prepares to carry out its annual review in June, some of the world’s biggest and best-performing equity markets – with assets totalling almost $9tn – are poised for reclassification.

Countries including Pakistan, Saudi Arabia, South Korea, China, would be affected by the review, according to Bloomberg.

Nigeria, which is struggling to restore investor confidence in its currency, has seen its benchmark stock index lose more than 30 per cent in dollar terms over the past 12 months.

The MSCI is considering whether to downgrade Nigeria from a frontier nation to a standalone market.

Investors are giving a thumbs up for a foreign-exchange window that started in April, which allows them to repatriate funds or value their naira holdings at rates more closely aligned to the informal market. A United States’ exchange-traded fund focusing on Nigeria has seen inflows after the start of the new mechanism.

Investors are now making a case for MSCI to use the price of the naira on the window to value stocks instead of the tightly controlled interbank rate.

BlackRock Inc., Allan Gray Ltd. and Frontaura Capital LLC have already started using the new rate.

“Using the official rate means that MSCI is overstating year-to-date performance of their Frontier Market Index by about one percentage point,” said an analyst at Frontaura, Tom Egbert.