Stocks hit 5-week high on MSCI index news

folarin okunola

May 3, 2016 5:22 PM

Nigeria's stock market, which has the second-biggest weighting behind Kuwait on the MSCI frontier index, gained 3.2 percent on Tuesday to levels last seen in March.

Traders take a break at the trading floor of the Nigerian Stock Exchange in Lagos, Nigeria February 10, 2016. REUTERS/Akintunde Akinleye

Nigerian stocks climbed to a five-week high on Tuesday after index provider MSCI said it would not change the status of Nigerian securities on its frontier index.

MSCI last month said it would consult investors on the ease of access to the Nigerian stock market in the wake of currency controls introduced last year which could have led to it removing Nigeria from its frontier index.

The index of Nigeria's top 10 consumer goods rose 5 percent, with Nestle leading the charge to rise 10.25 percent, the maximum allowed.

Other gainers included Nigerian Breweries, United Bank for Africa and Dangote Cement, which accounts for third of total capitalisation, each up 5 percent.

In a statement released late on Friday, the index provider said Nigeria will receive "special treatment" in its upcoming semi-annual index review in May given the deteriorating liquidity in its foreign currency market.

It said Nigerian securities listed in its country or composite indexes would not be subject to changes, such as migration between size segments or the additions of new eligible securities.

"MSCI will, however, implement deletions from the relevant indexes or reductions in the Foreign Inclusion Factor (FIF) caused by low foreign room, low liquidity or prolonged suspension," it said in a statement.

However, share dealing by foreign investors in Nigeria has been declinning. Foreign share dealing fell to 34.4 billion naira ($173 million) in March, down 66 percent from a year ago, the stock exchange said, adding that more than half of transactions were deals to sell shares.

Africa's biggest economy is facing its worst crisis in decades as the fall in the price of oil has slashed government revenues, prompting the central bank to peg the currency and introduce curbs to protect foreign exchange reserves, which have fallen to an 11-year low.

For MSCI the ease of capital inflows and outflows is one of the key criteria in its market classification framework. Being excluded from MSCI's Frontier Market index would create a higher hurdle for Nigeria to attract investments.

Renaissance Capital estimated in April that about $480 million of MSCI benchmarked money was in Nigeria, in both mutual funds and exchange traded funds.

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