FTSE Russell downgrades Nigeria's market status amid foreign exchange concerns

  • Investing.com
FTSE Russell downgrades Nigeria's market status amid foreign exchange concerns

FTSE Russell, the global provider of benchmarks, analytics, and data solutions, has downgraded the Nigerian Exchange (NGX) from 'Frontline (NYSE: FRO )' to 'Unclassified Market' on Tuesday, September 12, 2023. The decision was prompted by ongoing foreign exchange issues in the country.

The downgrade will take effect from Monday, September 18, 2023. It means that Nigeria’s index status will be removed entirely from all five FTSE stock indices, effectively given a value of zero. This move is likely to impact Nigeria’s visibility on the international investment landscape, making it more challenging for the country to attract foreign capital.

Following the announcement of the downgrade, immediate selloffs drove the All-Share Index down by 1.24% to close at 67,296.18 points on Tuesday. The Tier-1 banking sector in Nigeria felt the effects acutely with Zenith Bank plunging by 5.82%, Guaranty Trust Holding Co. (GTCO) dropping by 8.62%, and Access Bank falling by 8.57%. This resulted in the market’s year-to-date (YTD) returns tumbling to 31.11% and wiping out N463.66 billion (USD 1.14 billion) in market capitalization, which closed at N36.83 trillion (USD 90.81 billion).

FTSE Russell had previously suspended changes for Nigeria within its equity indices since September 2022 due to the lack of liquidity in the Investors' & Exporters' (I&E) FX Window which was impacting the ability of international institutional investors to replicate benchmark changes.

In response to this situation, Nigeria's Central Bank has indicated plans to clear the foreign exchange (FX) backlogs in the upcoming weeks. The FX backlogs, which are unmet demands for forex by investors and exporters, are estimated at $10 billion and have resulted in significant losses for many firms.

Despite the disappointing news from FTSE Russell, Nigerian stock investors had shown confidence in the stock market, leading to NGX emerging as one of the best-performing exchanges in Africa during a 3-month duration. This development had pushed the market to its 15-year high on the back of strong positive sentiments.

FTSE Russell stated that it will continue monitoring Nigeria and once the foreign currency delays are cleared for a period of time, Nigeria will be assessed as a new market in accordance with the FTSE Equity Country Classification Process. This process will follow the standard procedure and timetable for a new market, with Nigeria required to spend a period of time on the Watch List before it is readmitted as an eligible market for the FTSE Russell equity indices.

Several analysts have commented on this development. Abiola Rasaq, former economist and head, investor relations for United Bank for Africa Plc, expressed disappointment over FTSE's decision during a transition period when Nigeria's FX situation is expected to improve soon. He noted that liberalization reforms often face initial challenges and he would have expected FTSE to give more time for these policy measures from a new regime to evolve before making such a decision.

Damilare Akinlotan, investment and equities analyst for Risevest, also noted that the removal from these indexes means Nigerian stocks listed on those indexes will no longer be accessible to foreign investors who invest in those indexes. He added that if Nigeria can resolve its FX issues, it should be added back as a new market.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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