Investors in the Nigerian stock market have seen losses amounting to N757 billion over two days following the demotion of Nigeria from a frontier to an unclassified market by FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG). This downgrade is primarily attributed to challenges in Nigeria’s foreign exchange (FX) market, which have sparked negative sentiment capable of triggering a sell-off in stocks on the Nigerian Exchange Limited (NGX).
The stock market had closed the previous week at N37.295 trillion but dropped by 2.07% or N757 billion, closing at N36.538 trillion after news of the FTSE Russell downgrade.
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David Adnori, Vice President of Highcap Securities Limited, connected the stock market decline to the FTSE Russell downgrade and other macroeconomic factors. He mentioned concerns about Nigeria’s daily crude oil production falling short of the revenue target set by the federal government.
Adnori explained that the FTSE Russell report may have had a significant impact on foreign investors who have faced difficulties repatriating their dividends for several years. He argued that the responsibility for facilitating the conversion of Naira income to foreign currencies and remittance abroad lay with the Central Bank of Nigeria (CBN), and the CBN had failed in this regard.
FTSE Russell stated that the lack of liquidity in Nigeria’s Investors’ & Exporters’ (I&E) FX Window had adversely affected international institutional investors’ ability to replicate benchmark changes. Consequently, Nigeria’s equity classification status was downgraded from Frontier to Unclassified market status, and Nigerian index constituents were deleted at zero value from several FTSE Russell equity indices, effective from September 18, 2023.
The downgrade reflects the ongoing challenges in Nigeria’s FX market and their potential impact on foreign investors and the country’s stock market.
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