BlackRock, the world's largest asset manager, has announced the closure of its $400 million iShares Frontier ETF, which includes investments in frontier and select emerging markets like Nigeria and Kenya. The exit signifies a growing trend of foreign investors retreating from these local markets due to a tough macroeconomic environment, currency instability, and liquidity challenges.

Key Points:

• Fund Liquidation: The iShares Frontier ETF will undergo an extended liquidation period, with trading expected to cease by March 31, 2025.
• Economic Challenges: Persistent liquidity issues and delays in repatriation of local currencies, such as the naira, have prompted the decision.
• Impact on Local Markets: The fund's withdrawal is part of a broader trend of declining foreign investment in African equities, impacted by low returns and currency scarcity.
• Specific Investments: In Kenya, the ETF had significant holdings in Safaricom, Equity Group, and KCB Group, totaling $5.2 million.

Detailed Breakdown:

• Decision Rationale: The board of iShares cited persistent liquidity challenges and delays in repatriating local currencies as key reasons for the fund's liquidation. This strategic move aims to protect the interests of shareholders amidst an increasingly challenging market environment.
• Liquidation Process: The fund will sell its assets across all markets during the liquidation period, converting proceeds into cash and cash equivalents. The conversion of Nigeria's naira and other currencies will influence the timing of this process.
• Foreign Investment Trends: African equities have become less attractive to foreign investors, who are deterred by low returns and currency scarcity in markets like Egypt, Nigeria, and Kenya. This trend underscores the broader economic difficulties faced by these countries.
• Impact on Kenyan Market: BlackRock's iShares ETF has already liquidated its investments in the Nairobi Securities Exchange (NSE), including major stakes in Safaricom ($2.8 million), Equity Group ($1.5 million), and KCB Group ($885,000).

This strategic exit by BlackRock's iShares reflects the broader economic and financial challenges faced by frontier markets, as foreign investors seek more stable and profitable opportunities elsewhere.

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