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Market Digest Nigeria

Finance

Morgan Stanley removes four stocks from Semi Annual Half year Index review

Morgan Stanley Capital International (MSCI) recently released its Semi Annual Half year Index review, which will take effect on 28 May, 2019.

Nigerian  bank stocks have underperformed the broader market this year, despite rising rates and strong earnings results. Morgan however, attributed solid earnings results this year and in the recent quarter to better than expected trends in trading, wealth and investment management, and revenues.

Affected banks

Wall Street investment bank Morgan Stanley has made a bold call to remove the four Nigerian stocks from its Nigerian Index, while weighting of several others was increased. Access Bank, UBA and Unilever Nigeria were removed from the MSCI Nigeria index. Weightings for Dangote Cement, Guaranty Trust Bank, Nestle Nigeria, Zenith Bank, Nigerian Breweries, Stanbic IBTC Holdings, Seplat, FBN Holdings and Ecobank Trans International where increased. GTB had the largest share of the Nigerian index at 19.89%; Dangote Cement follows closely at 18.69%; Nestle Nigeri takes the third position at 17.05%.   For the MSCI NIgeria IMI index, Fidelity Bank was removed, while Dangote Cement and Lafarge Africa had their weightings increased.

Reasons for removal

The stocks may have been removed due to decline in their market capitalization for the period under review. The Nigerian stock market has performed poorly in 2019, and the All Share Index is down 9.37% year to date.  However, Moving forward, Morgan expects these Banks to up its financial targets in during the second quarter of the financial year, also noting upside from the stability in government and oil prices. In June, they foresee business improving under the Comprehensive Capital Analysis and Review, based on commentary from management. At large, the bank’s stocks dominance in capital markets and retail should allow it them to expand their market share and reap the benefits of scale, which have been “elusive” at the start of the 2019 calendar.

Stocks removed from the indices may witness sell downs, as foreign portfolio investors will rebalance their portfolios accordingly. The rebalancing however in no way implies change in fundamentals of the stocks, which remain sound.  The MCSI Frontier Market Index was created in 2007 and tracks stock markets of countries which are more volatile than emerging markets. The 21 countries in the Index are Argentina, Bahrain, Bangladesh, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Mauritius, Morocco, Nigeria, Oman, Romania, Serbia, Slovenia, Sri Lanka, Tunisia, and Vietnam.
It also includes the West African Economic and Monetary Union, which consists of Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

Morgan Stanley Wealth Management is the wealth management division of the investment bank Morgan Stanley. The division, which has more than $2 trillion in assets under management (AUM), serves individuals, families, businesses and institutions

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