South Africa’s JSE aims to ‘spearhead’ African cross-listings with ETFs

Oosthuyse: ETFs help boost liquidity

Stock markets in Nigeria, Kenya and South Africa are planning to launch cross-listed exchange traded funds later this year, as part of an initiative that aims to boost liquidity across Africa’s three largest markets.

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. The idea is to provide an easy alternative to stock picking, which has historically produced relatively poor returns over the last seven years. ETFs have become increasingly popular around the world during the same period, and many exchanges have set targets to increase the number of ETFs they offer as a way of increasing liquidity.

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 form of an ETF. Again, the idea is essentially to broaden the pool of investors and encourage more liquidity. It also means that investors that have access to one market will gain access to products from another, through the cross-listing.

The JSE says that the cross listing of ETFs will mean that investors will have exposure to top performing  Nigerian, Kenyan and South African companies. By cross listing ETFs on African exchanges, investors will be given access to 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,” said Donna Oosthuyse, director of capital markets at the JSE. “By collaborating with Africa’s largest stock exchanges, we hope to spearhead this trend in Africa.”

Oosthuyse added 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.”

“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,” she added. “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.”

“ETFs are becoming attractive to many investors offering them portfolio diversification and reduce cost of investing,” said Haruna Jalo-Waziri, executive director, business development at the Nigerian Stock Exchange. “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.”