The Nigerian Exchange Limited (NGX) suffered a substantial blow as investors witnessed a staggering N757 billion wipe-out in just two days. The unsettling drop came after FTSE Russell decided to reclassify the Nigerian market from frontier to unclassified.
FTSE Russell, a renowned London Stock Exchange Group (LSE) subsidiary, justified this move, citing Nigeria’s ongoing foreign exchange challenges. While not new, these currency issues have injected negative sentiments into the market, sparking an accelerated stock sell-off.
By the numbers: The NGX, which wrapped up the previous week at an impressive N37.295 trillion, saw a 2.07% dip, closing at N36.538 trillion. The NGX All Share Index (ASI) also reeled back by 2.03% to land at 66,760.20 basis points from the preceding week’s 68,143.34 points.
Notably, boasting a solid foreign investor footprint, the banking sector faced substantial downward trends. The NGX banking index receded by 8.54%, landing at 653.15 basis points from its opening 714.16 points at the week’s commencement.
This Day Live reported that while local investors predominantly steer NGX’s activities (making up 94% of the market dynamics as of July 2023), the market still felt the aftershocks of the downgrade during its initial two trading sessions this week. Many indices exhibited strong sell trends, leading to year-to-date (YTD) returns plummeting to 30.3%.
David Adnori, Vice President of Highcap Securities Limited, opined on the situation, emphasizing the role of the FTSE Russell decision in this market performance downturn. He indicated that foreign investors’ sentiment has shifted negatively since the announcement. Adnori added, “The inability of these investors to move their dividends out of the country for years might make the FTSE Russell report particularly pertinent to them.”
It’s important to note that the FTSE Russell, famed for its FTSE 100 Index and Russell 2000 Index, has officially sanctioned Nigeria’s downgrade. This change will be in effect from September 18, 2023. As a result, Nigerian indices will be eliminated from several FTSE Russell equity indices, encompassing the FTSE Frontier Index Series, FTSE Ideal Ratings Islamic Index Series, and more.
A report acquired recently unveiled that this reclassification aligns with FTSE Russell’s watch list status for Nigeria as of June 30, 2023, after assessing market players’ feedback on repatriation concerns. Although Nigeria adopted a floating FX regime for its currency, the naira, in the investor’s and exporter’s (I&E) FX Window, liquidity challenges continue, hindering international investors from reflecting benchmark alterations.
This downgrade, which has been in the making since September 2022, became essential due to persisting hurdles for international institutional investors in capital repatriation. However, there’s a silver lining: Nigeria will maintain its position in the FTSE ASEA Pan Africa Index Series, but with corporate event implementations on hold for the foreseeable future.
