MSCI Inc., a major index provider recently announced that it would be keeping Nigeria in its widely tracked MSCI Frontier Market Index, after suspending its plan to consider the country for a reclassification status. 
Will this decision spur another round of rally in Nigerian equities in the medium term or has it been priced in?
The earlier decision to consider reclassifying Nigeria was due to FX illiquidity prior to the introduction of the I&E Window.
The earlier decision to consider reclassifying Nigeria was due to FX illiquidity prior to the introduction of the I&E Window.
We recall that MSCI Inc. had issued a statement in June-17, expressing the need to watch the impact of the new window on FX liquidity. In essence, this latest announcement appears to be a validation of the effectiveness and sustainability of the I&E Window, which further raises hope of re-inclusion of Nigerian bonds in the JP Morgan Index.
Buoyed by significant portfolio inflows as shown in recent NSE data, Nigerian equities commenced a broad-based rally in May/June-17, a period that could still be seen as a testing phase for the new FX policy.
Buoyed by significant portfolio inflows as shown in recent NSE data, Nigerian equities commenced a broad-based rally in May/June-17, a period that could still be seen as a testing phase for the new FX policy.
Our sense is that portfolio managers' earlier underweight position in Nigeria has since improved, hence we do not expect to see a material rally hereafter.
However, with a P/E of 11.6x, the MSCI Nigeria Index is still cheaper than the ASI (12.5x) and the broader MSCI Frontier Index (16.3x).
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