Analysts okay Nigeria, South Africa, Kenya plan to cross-list more ETFs

Nigerian analysts have described the move by South Africa, Nigeria and Kenya to cross-list more exchange-traded funds (ETFs) on their stock markets to boost liquidity of the securities as a welcome development.

Ayodeji Ebo, head investment research, Afrinvest West Africa Limited, classified the move as a medium to long term strategic plan to develop the Nigerian bourse and not short term plan based on the level of acceptance and confidence amongst domestic investors.

“We applaud this initiative of the Nigerian Stock Exchange (NSE) to promote cross-listings of exchange traded funds (ETFs) among South Africa, Nigeria and Kenya. Currently, the activity and liquidity of ETFs is not encouraging. Currently, we have four ETFs ETFslisted on the NSE (Index and Commodity) but investors’ knowledge about this product (derivatives) remain bleak, hence the low interest”, he said in an emailed response to BusinessDay.

In addition to the cross-listing of ETFs amongst these major African countries, he said domestic investors’ education regarding the advantages of ETFs needs to be reiterated especially when compared to mutual funds, adding that it becomes easier for domestic and foreign investors to invest across these three countries based on the constituents of the stocks in the baskets i.e. for Equity.

Olutola Oni, analyst at WSTC Financial Services Limited, said in an emailed response that the development should be a positive one for the Nigerian market.

He said theoretically, the cross-listing of exchange traded funds on the Nigerian, Kenyan and South African stock markets should increase product offerings on these exchanges, thus providing a wider choice of investable instruments for investors in these markets.

“It should also enhance investment risk diversification for investors, as well as increase the access of both the sponsors of the ETFs and the issuers of the underlying assets to long term capital”, he added.

“We reached out to East Africa and West Africa,” Tamsin Freemantle, business development manager of the South African bourse, said in an interview on May 14 in the Kenyan capital, Nairobi, according to Bloomberg. The JSE is “working closely with those markets to develop this cross-listing,” she said. African exchanges are looking to increase cooperation as companies from Botswana to Nigeria list their shares on other bourses. The JSE, with a market value of 10.7 trillion rand ($902 billion), has rallied 8.9 percent this year in the best performance after Botswana among 14 sub-Saharan exchanges tracked by Bloomberg.