Global financial organisation, FTSE Russells has cited Nigeria’s foreign exchange challenges as its reason for downgrading the Nigerian Stock Exchange (NGX) from “Frontline” to “Unclassified Market.”
FTSE Russells said the downgrade of the NGX will take effect by September 18, 2023, a move which has triggered immediate selloffs that dropped the All-Share Index to 1.24% to close at 67,296.18 points.
The effect was also felt across the financial sector and most especially, in Nigeria’s Tier-1 banking sector, with Zenith Bank dropping by 5.82%, Guaranty Trust Holding Co. (GTCO) dropping by 8.62%, and Access Bank falling by 8.57%.
Once the downgrade takes effect, Nigeria's index status will be given a zero value and removed entirely from all five FTSE stock indices.
FTSE Russells further explained that the reclassification was a follow-up to the June 30, 2023, FTSE Equity Country Classification – Watch List Status for Nigeria, which had studied feedback from market participants on repatriations.
The UK-based financial institution also noted that issues raised in the reports were the main reasons some institutional investors have faced difficulties repatriating their trapped capital.
The global rating agency went ahead to spot the lack of liquidity in Nigeria’s Investors & Exporters’ (I&E) FX Window while adding that the development was a setback to the ability of international institutional investors to replicate benchmark changes.
“FTSE Russell will continue monitoring Nigeria and once the foreign currency delays are cleared for a period of time, Nigeria will be assessed as a new market in accordance with the FTSE Equity Country Classification Process.
“This process will follow the standard FTSE Equity Country Classification procedure and timetable for a new market, with Nigeria required to spend a period of time on the Watch List before it is readmitted as an eligible market for the FTSE Russell equity indices.” the body noted
The downgrade will possibly affect Nigeria’s image on the international investment landscape and will also create a more challenging position for the country in its recent quest to woo foreign investors.