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Sustainability in FX policy will ensure Nigeria is not exited from MSCI index – SCM Capital

Last week, MSCI, a leading provider of global equity indexes, announced that it is delaying its decision on a potential reclassification and removal of the MSCI Nigeria Index from the MSCI Frontier Markets Index to Stand-alone Market status to the November 2017 semi-annual index review. This was after MSCI said in 2016 that it will temporarily retain Nigerian indexes pending another reclassification this year.  In this interview, Sewa Wusu, Head, Research & Investment Advisory, SCM Capital, opined that sustainability in the Investors and Exporters forex window will force MSCI to continue to retain MSCI Nigeria Index in their Frontier Index come November when another reclassification would be done.

By Nkiruka Nnorom

LAST week, MSCI announced that it is delaying removal of Nigeria from its frontier markets index. How do you view this decision?

The decision is a positive one for the market. If they had actually effected that change to the negative side, that would have affected investors’ confidence.

But now that they have extended the review period upward, I think that will give investors some level of confidence. Of course, you know the market has been very strong or bullish over a couple of period because of the renewed interest.

Sewa Wusu, Head, Research & Investment Advisory, SCM Capital

Dollar liquidity

That shows the level of confidence investors have in the market. So, apart from that, I also think that the FX situation has actually been very supportive of the market for them to say ‘let’s wait and see the impact of the FX situation. I think for me that is quite good for the market.

What do you think would influence    the MSCI decision when they finally sit in the next couple of months?

I think their decision, basically, will centre on transparency and the level of stability that we have seen in the FX market. The sustainability of this is very essential and for me, I think it is very sustainable.

The only fear is that oil price is beginning to come down and that is the only threat I see to the FX situation because we still depend on oil.

Apart from that, to a large extent, we have seen that the Central Bank of Nigeria, CBN, has significantly intervened in the market to provide dollar liquidity and that is very supportive of the FX policy. So, if that can be sustained apart from the threat of oil price decline, I think by and large, the MSCI decision will favour the Nigerian market by the time they sit subsequently.

The last two days (Wednesday and Thursday), the market went down by over N1trillion. Was this just as a result of profit taking?

The market is simply responding to the whims and caprices of profit taking and that is understandable because we have seen significant bullish movement over the last couple of weeks. And the market is technically at over-bought region. So, what we witnessed within that space is profit taking holding sway. So, what we have seen is profit taking but that does not mean that the valuations are not right.

There is still opportunity because despite the fact that people are taking profits, we are still seeing significant strong volume. That tells you that confidence is still very much strong concerning the market going forward.

I think for me, that the market is going down should not be a source of concern. Some people are selling, while others are buying. At some point, you take profit and some people also enter to ride with the winds. So, the volume growth is still very strong and that is a positive sign that the market is still very attractive.

In recent time, we have seen some stocks in the pharmaceutical sector, especially May & Baker Plc and Fidson Healthcare Plc, recording appreciable returns. Could you explain what is going on in the sector?

I know that May & Baker Plc entered into partnership with the government to produce Ebola and meningitis vaccine for them. So, that is a positive development for the company.

 Positive development

Of course, you know that most of the pharmaceutical companies are going through the pain of fake drugs, but I think to a large extent, because of the general positive perception about the market, that is why you also discover that some of these stocks in that sector are also responding positively to the market flow.

The development is a positive one for the company in terms of future cash-flow.

So, for Fidson Healthcare, what is driving the positive sentiment?

For Fidson, I have not seen anything that is driving the share movement. I think the market is just responding positively.

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