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How MSCI's deferred decision halted Nigeria's stock market gains
The MSCI had notified that it will review the index of Nigeria, China, Saudi Arabia and Argentina and made it known that Nigeria's rating might be downgraded due to FX related issues.
Traders on the Nigerian Stock Exchange, Lagos
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In response to this news, the Lagos Bourse all-share index (ASI) fell by 2.6 per cent to close at 33,477.89 on Wednesday, June 21, 2017. Therefore, ending the five-day bullish run of the capital market.
It would be recalled the MSCI placed Nigeria on reclassification lists, and states that it may remove her from the Frontier Index based on the forex currency issues and restraints place by the Central Bank of Nigeria (CBN).
Also, the index of Nigeria’s 10 top banks on the NSE shed about 2.6 per cent, due to the MSCI news and outcome of the Etisalat debt restructuring talks.
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Similarly, the market capitalization of the exchange also fell from N11.89 trillion on Tuesday, June 20, 2017, to close at N11.58 trillion on Wednesday, June 21, 2017. However, the volume and value of stock traded on the bourse increased by 29.7 and 52.1 percent respectively.
The MSCI on Tuesday, June 20, 2017, released a statement that it will be reviewing the index of Nigeria, China, Saudi Arabia and Argentina and to make its decision known later in the day. The body later announced that it is pending the test of viability of the various foreign exchange windows of the CBN, it would delay its decision on the country noting that: “To date, investors seem to be cautiously optimistic on the effectiveness of this new window but still require more time to test it further.”
“As a reminder, the Central Bank of Nigeria (CBN) pegged the local currency to the U.S. dollar in the first half of 2015, resulting in a sharp decline in liquidity on the foreign exchange market, particularly at the beginning 2016, it further added.
“Hence, the ability of international institutional investors to repatriate capital has been significantly impaired to a point where the instability of the Nigerian equity market is being questioned.
“Additionally, the decision on the potential removal of the MSCI Nigeria Index from the MSCI Frontier Markets Index has been delayed to November 2017 to allow more time for international institutional investors to better assess the effectiveness of the new FX trading window introduced by the Central Bank of Nigeria.”
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This delay would provisionally save Nigeria from its delisting from other indexes such as the JP Morgan & Chase Government Bond Index for Emerging Market and Barclays Bank’s Emerging Markets Local Currency Government Bond Benchmark.
At Present, there are about 16 Nigerian Funds on the MSCI index, making the fourth biggest funds on the index.
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