Recently, FTSE Russell announced the downgrading of Nigeria’s FTSE Equity Country Classification Status from a Frontier market status to an Unclassified market status. Furthermore, from September 18th 2023, Nigerian index constituents will be removed from various FTSE Russell equity indices, valued at zero (NGN0.0001). The equity indices include:
- FTSE Frontier Index Series, including the FTSE Frontier 50 Index
- FTSE Ideal Ratings Islamic Index Series
- FTSE/JSE All Africa Index Series
- FTSE Middle East and Africa Extended Index Series
- FTSE/MMV Exchange Index
This decision by FTSE Russell comes despite the introduction of the FX liberalization policy in Nigeria, which permits the free float of the exchange rate. However, FTSE Russell considered the existing low FX liquidity in the market, which hinders foreign investors’ ability to repatriate their capital at a foreign exchange rate consistent with FTSE Russell equity indices.
It is important to note that Nigeria will still be part of the FTSE ASE Pan African Index Series and will undergo monitoring on FTSE Russell’s watch list. This monitoring period will precede Nigeria’s potential readmission as an eligible market for FTSE Russell equity indices.
Reputable institutions’ announcement of market downgrades has historically had significant negative impact on the performance of markets globally. If FTSE, which happens to be one of the key indexes considered by foreign investors, downgrades or contemplates the downgrade of the Nigerian market, this could undermine the expectations of foreign capital inflow, which in turn, would normally trigger a sell-off in the market, with particular repercussions for high liquidity tickers.
Click here for the press release