MSCI Halts Plan to Downgrade Nigeria Indexes

MSCI Halts Plan to Downgrade Nigeria Indexes

MSCI has announced a decision to extend its consultation on the potential reclassification of the Nigeria Indexes from the frontier to standalone market status following recent developments in the FX market.

The index had threatened to downgrade Nigeria’s indexes as a result of the Central Bank of Nigeria’s capital control measures that made it difficult for foreign investors to repatriate foreign currency offshore.

It however decide to adopt wait and see method to gauge how the new development in the foreign exchange market will play out for foreign investors with interest in Nigerian assets.

“MSCI will continue to consult with market participants on the potential reclassification of the MSCI Nigeria Indexes until September 29, 2023, and will announce the results of the consultation on or before October 31, 2023”. FX liquidity issues have continued to impact the accessibility of the Nigerian equity market.

In a statement, MSCI said since the onset of these issues in March 2020, there have been constraints in US dollar liquidity in the market, leading to constant capital repatriation concerns and a gap between the parallel and official exchange rates for the Nigerian Naira.

“This has persistently caused index replicability and investability issues for international institutional investors.
“The feedback from market participants obtained as part of the consultation suggests that the limited accessibility of the Nigerian equity market, resulting from a lack of liquidity on the FX market, would warrant its removal from the MSCI Frontier Markets Index”.

On June 14, 2023, the Central Bank of Nigeria announced operational changes to the FX Market, effective immediately. Such changes include, amongst others, the abolishment of the previous FX market segmentation, merging all sectors into the Investors and Exporters Window, and the reinstalment of the “Willing Buyer, Willing Seller” model with no rate cap.

“We decided to extend the consultation to allow more time for the liquidity situation in the Nigerian FX market to stabilize following the recently implemented measures by the Central Bank of Nigeria, abolishing the multiple exchange rate system,” remarked Jean-Maurice Ladure, Global Head of Index Management Research and a member of the MSCI Index Policy Committee.

“We will evaluate the impact of these measures in the context of market accessibility, in particular the impact on the clearing of the FX queue during the capital repatriation process.

“If such improvements were not to be observed by market participants during our extended consultation period, it would confirm that the ease of capital inflows and outflows in the MSCI Nigeria Indexes is not to the standards expected from Frontier Markets.” #MSCI Halts Plan to Downgrade Nigeria Indexes

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