Investors on the Nigerian Exchange Limited (NGX) have suffered a loss of N757 billion within two days after the demotion of the exchange from a frontier to an unclassified market status by FTSE Russell.
This decision by FTSE Russell, a subsidiary of the London Stock Exchange Group, was prompted by Nigeria’s foreign exchange challenges, creating a new source of negative sentiment capable of triggering stock sell-offs on the market.
Last week, the stock market closed at N37.295 trillion but dropped by 2.07% (N757 billion) to close at N36.538 trillion.
The NGX All Share Index (NGX ASI) also depreciated by 2.03%, equivalent to 1,383.14 basis points, closing at 66,760.20 basis points.
The banking index, which saw high foreign investor participation between last week and yesterday, experienced a significant decline due to downward performance in some banking stocks. The index dropped by 8.54% in two days.
Though local investors dominate market activities, the downgrade still impacted the stock market performance, with most indices recording notable sell pressures and year-to-date returns falling to 30.3%.
The Vice President of Highcap Securities Limited, Mr. David Adnori, attributed this decline to the possible downgrade by FTSE Russell, noting that foreign investors have shown negative sentiments since the report was released.
Nigeria’s downgrade, ratified by the FTSE Russell Index Governance Board, takes effect from September 18, 2023. This means Nigerian index constituents will be deleted at zero value from five FTSE Russell equity indices.
FTSE Russell, a subsidiary of the London Stock Exchange Group, is known for producing, maintaining, licensing, and marketing stock market indices, including the FTSE 100 Index and Russell 2000 Index.
The downgrade was based on the analysis of feedback from market participants on repatriations, as the lack of liquidity in the Investors & Exporters’ (I&E) FX Window continued to adversely affect the ability of international institutional investors to replicate benchmark changes.
While Nigeria will be retained in the FTSE ASEA Pan Africa Index Series, the implementation of certain corporate events has been suspended until further notice.