Major equity index downgrades Nigeria

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FTSE Russell, a subsidiary of the London Inventory Trade group and a supplier of market benchmarks and analytics, has downgraded its classification of Nigeria from “frontier” to “unclassified” market in a transfer that might dent international inflows into Nigerian inventory exchanges.

As of 18 September, Nigerian indices will not be represented within the FTSE Frontier Index Collection, which incorporates benchmarks such because the FTSE Frontier 50 Index, the FTSE/JSE All Africa Index Collection, and the FTSE Center East and Africa Prolonged Index Collection.

These indices are utilized by merchants and buyers all over the world to assist them observe the efficiency of various markets. Monetary merchandise resembling index funds and exchange-traded funds (ETFs) additionally observe FTSE Russell benchmarks and due to this fact purchase or promote shares when they’re added or faraway from the indices.

FTSE Russell introduced that it taken the choice to demote Nigeria to an “unclassified” market due to the nation’s longstanding international change difficulties. Since 2020, international buyers have discovered it more and more tough to repatriate capital from Nigeria due to capital controls and a scarcity of US {dollars}.

Some estimates put the determine of stranded international capital as excessive as $10bn. Nigerian President Bola Tinubu has tried to reform the nation’s international change market by devaluing the naira and changing the previous system of a number of change charge “home windows” with a single unified charge.

The transfer to downgrade Nigeria to an “unclassified” market might inflict each reputational and sensible harm on Nigerian inventory markets. A demotion might create the notion, pretty or in any other case, that Nigerian markets are greater danger than different rising markets in Africa and consequently disincentivise merchants from investing in Nigerian shares. Virtually, the reclassification will imply that index funds and ETFs monitoring any of the indices within the FTSE Frontier Index Collection will sell-off any publicity to Nigerian shares.

The influence has already been felt on the Nigerian Inventory Trade All Share Index, which declined on the back of the news earlier than rebounding. Longer-lasting declines may very well be in retailer ought to index funds and ETFs promote Nigerian shares en masse subsequent week when the reclassification formally takes place.

Indicators of enchancment

However have been encouraging indicators that Tinubu’s latest strikes might assist to resolve the state of affairs. Earlier this week, President Tinubu struck a deal in Abu Dhabi with the president of the United Arab Emirates, Mohamed bin Zayed Al Nahyan, to carry Etihad and Emirates Airways’ providers again to the nation.

In August 2022, Emirates suspended all flights to and from Nigeria due to its incapability to repatriate $85m price of funds. The deal might embrace monetary mechanisms to permit Emirates to take its money in a foreign country, probably suggesting the brand new administration is taking a extra accommodative strategy to international buyers. The brand new deal will even embrace the launch of a brand new a joint international change liquidity programme with the UAE, particulars of which shall be introduced within the coming weeks.

Given these developments, members of the Affiliation of Capital Market Lecturers of Nigeria (ACMAN) have criticised FTSE Russell’s choice. “We expect it is a untimely transfer on the a part of FTSE Russell, which has not allowed enough time for the foreign exchange reforms launched by the federal government to mature,” the group’s president, Uche Uwalke, mentioned in a press convention in Abuja earlier this week.

Standing may very well be reconsidered

FTSE Russell has mentioned that ought to these reforms yield outcomes, Nigeria’s standing may very well be reconsidered however that it “shall be assessed as a brand new market.”

“FTSE Russell will proceed monitoring Nigeria and as soon as the international foreign money delays are cleared for a time period, Nigeria shall be assessed as a brand new market in accordance with the FTSE Fairness Nation Classification Course of. This course of will comply with the usual FTSE Fairness Nation Classification process and timetable for a brand new market, with Nigeria required to spend a time period on the Watch Record earlier than it’s readmitted as an eligible marketplace for the FTSE Russell fairness indices,” the organisation mentioned. 


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