Investors on the stock market of the Nigerian Exchange Limited (NGX) have lost N757 billion in two days over the demotion of the exchange from frontier to unclassified market status by FTSE Russell.
The downgrade by FTSE Russell, a subsidiary of London Stock Exchange Group (LSE), was against the backdrop of Nigeria’s foreign exchange (FX) challenges, which was a new source of negative sentiment capable of triggering stock sell off on the market.
The stock market, which had closed last week at N37.295 trillion, dropped by 2.07 per cent or N757 billion to close yesterday at N36.538 trillion.
The NGX All Share Index (NGX ASI) also depreciated by 2.03 per cent or 1,383.14 basis points to 66,760.20 basis points yesterday, from the 68,143.34 basis points it closed for trading last week.
The NGX banking Index, with highest foreign investors participation between last week and yesterday, had declined significantly, amid downward performance in some banking stocks.
Specifically, the NGX banking index dropped by 8.54 per cent in two days to 653.15 basis points, from 714.16 basis points it opened for trading this week.
Despite being dominated by local investors, the downgrade affected stock market performance on the first two trading this week, as most indices recorded notable sell pressures while year-to-date (YTD) returns tumbled to 30.3 per cent yesterday.
Activities in the local bourse have been dominated by local investors, who accounted for 94 per cent of market participants, while foreign investors accounted for six per cent as of July 2023, as analysts noted that the report might not be a major concern for the local market, saying greater concerns are the local dynamics.
Speaking on the report, the Vice President, Highcap Securities Limited, Mr. David Adnori, attributed the decline in stock market performance to possible downgrade by FTSE Russell, stressing that foreign investors since the report was released have shown negative sentiments.
According to him, “I think the FTSE Russell report may be relevant to foreign investors who have been suffering from the inability to repatriate their dividend for several years.”
FTSE Russell is a subsidiary of London Stock Exchange Group that produces, maintains, licenses, and markets stock market indices. The division is notable for the FTSE 100 Index and Russell 2000 Index, among others.
Nigeria’s downgrade, which had reportedly been ratified by the FTSE Russell Index Governance Board, takes effect from September 18, 2023.
Effectively, the Nigerian index constituents would be deleted at zero value (0.0001 NGN) from five FTSE Russell equity indices, including the FTSE Frontier Index Series, the FTSE Frontier 50 Index, FTSE Ideal Ratings Islamic Index Series, and FTSE/JSE All Africa Index Series.
Others are FTSE Middle East & Africa Extended Index Series and FTSE/MV Exchange Index.
In a report obtained by THISDAY, yesterday, the group stated that the reclassification was further to the June 30, 2023 FTSE Equity Country Classification – Watch List Status for Nigeria, which had analysed feedback from market participants on repatriations.
The ratings agency affirmed that although Nigeria had adopted a floating FX regime for the naira in the Investors & Exporters’ (I&E) FX Window, which is now operating on a “Willing Buyer, Willing Seller” basis, the lack of liquidity in this window continued to adversely affect the ability of international institutional investors to replicate benchmark changes.
The group stated that the country’s downgrade became inevitable as “index changes for Nigeria within FTSE Russell equity indices have been suspended since September 2022 and with no improvement in the ability of international institutional investors to repatriate capital at a foreign exchange rate that would be used in FTSE Russell equity indices.”
It, however, explained, “Nigeria will be retained in the FTSE ASEA Pan Africa Index Series, with the implementation of certain corporate events suspended until further notice.”