Cross listing of Exchange Traded Funds (ETFs) in Africa exchanges is set to takeoff soon as discussions are ongoing between market participants in Kenya, Nigeria and South Africa.
This is with an aim of giving investors an access to liquid company shares.
“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 Director for Capital Markets at the Johannesburg Stock Exchange (JSE), Donna Oosthuyse.
The cross listing of ETFs will fulfill two main functions: Investors will have exposure to a diverse range of top performing Nigerian, Kenyan and South African companies in a convenient and cost effective way; and the cross-listings of ETFs will also improve the liquidity of Africa’s largest stock exchanges.
Oosthuyse explains 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.”
He further clarifies that, if an ETF from Kenya or Nigeria 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.
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.
“This collaboration underscores our commitment to providing investors with a wide range of investment products to help them realize their financial goals this new and exciting investment opportunity to bolster trade across multiple markets.” Adds the Executive Director, Business Development, at the Nigerian Stock Exchange Haruna Jalo-Waziri,
Waziri further noted that ETFs are becoming attractive to many investors offering them portfolio diversification and reduce cost of investing.