Discussions are ongoing between the national stock exchanges of South Africa, Nigeria and Kenya to secure the correct framework for facilitating future cross-listings of exchange-traded funds between the three countries.

Donna Oosthuyse, Director for Capital Markets at the Johannesburg Stock Exchange.

The move will not only enhance liquidity (boosting the international perception of the country’s capital markets) but will also provide investors with previously off-limit investment opportunities.

Commenting on the discussions, Donna Oosthuyse, Director for Capital Markets at the Johannesburg Stock Exchange (JSE), said: “ETFs are one of the fastest growing asset-class categories in the world. By collaborating with Africa’s largest stock exchanges, we hope to spearhead this trend in Africa.”

Haruna Jalo-Waziri, Executive Director, Business Development, at the Nigerian Stock Exchange, noted: “This collaboration underscores our commitment to providing investors with a wide range of investment products to help them realize their financial goals. ETFs are becoming attractive to many investors offering them portfolio diversification and reduced cost of investing. We are proud once again to be collaborating with reputable exchanges in Africa to bring this new and exciting investment opportunity to bolster trade across multiple markets.”

The first ETFs planned to be cross-listed will track popular broad indices representing the performance of each country’s national stock markets. These include funds that track the FTSE/JSE Top 40, representative of the 40 largest market-cap firms listed on the Johannesburg Stock Exchange; those that follow the FTSE/NME Kenya 15, tracking the performance of the 15 biggest firms on the Nairobi Securities Exchange; and those that return the performance of the MSCI Nigeria, currently consisting of the 17 largest companies on the Nigerian Stock Exchange.

The collaboration will boost liquidity through the ‘fully covered’ nature of ETFs, meaning that asset managers are required to buy or sell the constituent securities of the fund on the home exchange, as units of the ETFs are created or redeemed respectively. As Oosthuyse explains: “This drives liquidity in the home market. In addition to this, it provides extra visibility of the shares on that exchange to new investors who in all likelihood don’t yet trade on that market.”