The Nigerian Stock Exchange will launch a new index of 40 to 60 top shares by December which will attract new foreign investors seeking exposure to the nation, a top exchange official said on Tuesday. The exchange is in a race to develop new instruments to absorb a "wall of money" from domestic and foreign investors, the exchange's head of strategy and derivatives, Farook Oreagba, told Reuters in an interview. "In the next two or three months we expect to see a new tradeable index in Nigeria ," Oreagba said. The index is still being formulated by the exchange, but is likely to contain between 40 and 60 top shares and would be reviewed quarterly, he added.
"On the back of that we want to create exchange-traded funds. They will be another asset class which will probably take up a significant amount of the money we have in the market." The index will enable investors to bypass lengthy bureaucratic delays involved in investing directly in Nigerian stocks and will attract global index-tracking funds. "I expect it to be mostly new money ... mainly foreign investors who want Nigeria exposure," Oreagba said. The creation of such indexes in other markets has spurred investment in stocks that make the grade. The Nigerian market has seen outstanding growth in real terms over the last three years and ranks in the top three performing markets worldwide in three of the last five years, Oreagba said. The All Shares Index has risen 58 percent in the last 12 months, buoyed by a flood of new issues.
Investor confidence has been lifted by economic reforms starting in 2003 which earned Nigeria a BB- credit rating, led to an $18 billion debt write-off and created pension funds which now have more than $5 billion invested in Nigerian securities. Since last year Oreagba said the exchange had been racing against time to create new instruments to absorb a "wall of money" and avoid a bubble. The exchange launched a secondary market in treasury bonds in the middle of 2006 and volumes traded in the second half of the year surpassed the value of equities traded during the whole year, he said. A reform of the banking sector, which raised capitalisation levels and forced a wave of mergers, has also fuelled the boom. Most Nigerian bank stocks have doubled in value this year alone, despite billions of dollars of new shares being issued, with some stocks rising by more than 500 percent.
Some investors expressed fears last month that bank stocks were overvalued and were ripe for a sharp drop, and some bank shares did subsequently fall in the second half of August. Oreagba said there were several factors behind the recent correction, including the start of the school year which saw many parents liquidating assets to pay fees. The bourse is fast developing new instruments, including real estate investment trusts (REITs), Oreagba said, but these investments are on hold until the government confirms they are exempt from corporation tax.
"There is 150 billion naira waiting to come to Nigeria if regulations are in place for REITs," Oreagba said. The boom has also exposed some problems. Transaction costs, which were cut by 40 percent in April, are still among the highest in the world. And service can be poor. Investors in a recent bank offer waited for over a year to receive their share certificates. Oreagba said the exchange was addressing these issues and hoped the demutualisation of the exchange -- expected to take place within three years -- would make it more responsive.
sourced from Nigeria 2Day, Wednesday 19th September 2007