MSCI Inc., a leading provider of research-based indexes and analytics has included Nigeria in the list of Frontier Markets that have accessibility issues. MSCI mentioned this in an issued statement yesterday. The report also highlighted challenges in the Nigerian equity market having been impacted by the significant deterioration of liquidity in the Nigerian FX market.
The MSCI Index is closely followed by foreign investors in determining emerging markets to invest in and stocks to select.
MSCI also disclosed that it will not implement selected changes for any securities classified in Frontier markets that include Nigeria, Lebanon or Bangladesh in the relevant MSCI Country Indexes or in any derived indexes that contain these markets.
Here is an excerpt of the statement;
“Some market accessibility issues have been recently observed in select Frontier Markets. The Nigerian equity market has been impacted by the significant deterioration of liquidity in the NigerianFX market. While such accessibility issues may be viewed by market participants as part of the inherent characteristics of Frontier Markets, these developments have a negative impact on the replicability of the indexes. Therefore, MSCI will continue classifying these markets as Frontier Markets until further notice, while applying a special treatment to potentially reduce the number of changes in the related indexes and mitigate the index replication concerns.”
The statement continues;
“MSCI will not implement selected changes for any securities classified in Nigeria, Lebanon or Bangladesh in the relevant MSCI Country Indexes or in any derived indexes that contain these markets. This special treatment will apply to any potential changes that would be part of upcoming index reviews, as well as certain corporate event implementations. This treatment has been in effect for the MSCI Nigeria Indexes since May 13, 2020 and will be applicable to the MSCI Lebanon Indexes and the MSCI Bangladesh Indexes effective immediately.”
Victor Silas an Investment Analyst spoke to Nairametrics on the positive outlook of the Nigerian economy in lieu of positive reforms presently carried by fiscal and monetary stakeholders. He said;
“Looking at current macro developments such as the resurgence of oil prices to 40$/barrel levels from previous 25$/barrels supported by relaxation of lockdown in major economies and supply cuts by the OPEC+ members, this provides a positive outlook on FX revenue generation coupled with the exchange rate unification plan by the Central Bank and Governor’s comment on the currency.”
Victor Silas, added that if the present macro fundamentals surrounding Nigeria capital market would more likely have continual liquidity challenges. He added by saying;
“I believe we will be seeing more FX liquidity, however, if the FX liquidity issues persist, this will be negative for the Nigerian Capital market particularly in relation to FPIs.”
Consequently, the research-based firm issued a stern warning that the MSCI Argentina Index may be removed from the MSCI Emerging Markets Index if there is further deterioration in market accessibility.
“While volatility increased dramatically due to the COVID19 pandemic, global equity markets remained accessible and continued to function well, allowing issuers to raise capital and investors to manage risk during the crisis,” said Dimitris Melas, Global Head of Equity Research and Chairman of the MSCI Index Policy Committee.
However, Dr. Melas added, “In the last 12 months, two important Emerging Markets, Argentina and Turkey, suffered substantial deterioration in market accessibility that could lead to their exclusion from the MSCI Emerging Markets Index.”