By Abdi Ali
Published August 14, 2015
South Africa, Kenya and Nigeria are working towards cross-listing of Exchange Traded Funds (ETFs) on Johannesburg Stock Exchange, Nairobi Securities Exchange and Nigerian Stock Exchange.
ETFs are a collection of equities, commodities or bonds bundled together in a fund to ensure that investor risks are evenly spread across this range of securities. ETFs are only written off specific index-related securities that are listed on a stock exchange, and this makes it possible to invest in a diverse range of securities through a single exchange traded product.
The concept of cross listing an ETF is the same as cross listing a share, or listing it on more than one exchange. It provides domestic investors with access to opportunities from another market, in the convenient and cost effective form of an ETF.
By cross listing ETFs on African exchanges, investors will be given access to liquid company shares tracked by indices such as the FTSE/JSE Top 40; the FTSE/NSE Kenya 15 Index; and the MSCI/Nigeria.
“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,” says Donna Oosthuyse, Director for Capital Markets at the Johannesburg Stock Exchange, JSE.
The cross listing of ETFs will fulfil two main functions: Investors will have exposure to a diverse range of top performing Nigerian, Kenyan and South African companies; and the cross-listings of ETFs will also improve the liquidity of Africa’s largest stock exchanges.
The advantages for companies included in the ETF indices, and for the exchanges from whence they come, Oosthuyse explains, are that ETFs need to be ‘fully covered’.
“This means that the asset manager that is managing the ETF portfolio has to buy and sell the underlying shares on the home exchange, depending on the activity of buying and selling of the ETF. If an ETF from Kenya or Nigeria for instance is listed on the JSE, then the asset manager in Kenya or Nigeria has to buy and sell the constituent shares on the home market, as units in the ETF are bought and sold. This drives liquidity in the home market. In addition to this, it provides extra visibility on the shares on that exchange to new investors who in all likelihood don’t yet trade on that market.”