Rebalancing  of the Morgan Stanley emerging market index could have a positive effect on the Nigerian Stock Exchange (NSE) this week. The All Share Index is up 21% year to date, largely driven by a change in the PENCOM rules which mandates them to increase their weighting of stocks in their portfolio as well as the CBN created investor window that have allowed foreign investor participation in the market.

The rebalancing of the index was due to the movement of Pakistan from the frontier market index to the emerging market index. Nigeria’s proportion of the MCSI was increased from 6.5% to 7.9%. A frontier market is a developing country that is in between the least developed countries and emerging countries. The term frontier market was coined by Fahrida Khambatta in 1992.

The effect?

  • Morgan Stanley’s decision will have a greater impact on blue chip stocks on the NSE as they have an increased weighting.
  • Many international fund managers who have passive portfolios tend to mirror the index.
  • Morgan Stanley had in 2015 moved Nigeria to a ‘standalone’ position due to liquidity issues in the country’s foreign exchange market.
  • The Central Bank of Nigeria (CBN) has addressed these issues with its pumping about $5 billion into the fx markets, and various windows including the investors/exporters (NAFEX). The investment bank will take a decision to review Nigeria’s position later this month.
  • Some of the stocks that have had an increased weighting include Nigerian Breweries, Zenith Bank, GT Bank, Nestle and FBN holdings. The NSE All Share Index lost 6.17% in 2016, as the economy slipped into recession.
Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

3 COMMENTS

  1. Good day Nairametrics team, I just want to thank you all for all the information you provide. I’m 18 and you would not believe how helpful this site has been to me academically. Please i hope someone finds time to answer, but i just want to know how weightings are calculated, and what influenced Nigerian stocks increase? Thank you in advance.

  2. weighting is a personal rating by morgan Stanley.Do not give much meaning to this weight.it like rating.morgan Stanley is an American investment bank,their business is to makes money

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