African markets to cross list exchange traded funds
17 August 2015
Discussions are under way between market participants in South Africa, Nigeria and
Kenya to launch the cross listing of exchange traded funds (ETFs), which will lead to
improved liquidity on Africa's exchanges.
ETF issuers are working to cross list new and existing ETFs on other exchanges,
while the exchanges themselves are putting in place the right frameworks to enable
this.
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. They
are only written off specific index-related securities that are listed on a stock
exchange, which 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.
Fastest growing asset class
"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," explains Donna Oosthuyse, the director for capital markets at the JSE.
The cross listing of ETFs will fulfil two main functions: investors will have exposure
to a diverse range of top-performing South Africa, Nigerian and Kenyan companies
in a convenient and cost-effective way; and the cross-listings of ETFs will improve
the liquidity of Africa's largest stock exchanges.
Oosthuyse says that the advantages for companies included in the ETF indices, and
for the
exchanges from whence they come, 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."
Home market liquidity
If an ETF from Kenya or Nigeria, for instance, is listed on the JSE, she adds, 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."
Haruna Jalo-Waziri, the executive director of business development at the Nigerian
Stock Exchange, says: "This collaboration underscores our commitment to providing
investors with a wide range of investment products to help
them realise 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."
Building African Financial Markets Seminar
Meanwhile, as part of an on-going effort to deepen and promote liquidity, choice of
products and investor interest across African markets, the JSE and the African
Securities Exchanges Association (ASEA), supported by the World Bank Group, will
be hosting the third
Building African Financial Markets Seminar from 16 to 18
September.
The conference will gather key representatives from stock exchanges, regulatory
bodies, stockbroking firms and other market participants from several African
countries.
Ideas on how to grow Africa's capital markets will be discussed.
Source: APO
The JSE board. (Image: Facebook: JSE)
