The stock index provider, MSCI World, is currently seeking feedback from investors on the ease of access to the Nigerian equity market, in a move that could finally lead to the exclusion of the nation’s bourse from MSCI’s Frontier Markets index.
The MSCI World is a stock market index of 1,631 ‘world’ stocks maintained by MSCI Inc. and used as a common benchmark for ‘world’ or ‘global’ stock funds that attract investors.
Analysts at Afrinvest Securities Limited said at the weekend, however, that to pull the system out of the current economic challenges, the time had come for the administration to review its approach to solving the lingering energy crisis in the country, together with its foreign exchange component.
In a statement issued last week by MSCI World, according to Reuters, the consultation followed the introduction of restrictions on foreign currency trading, saying that it would make public its decision on or before April 29.
With Nigeria in the throes of severe economic crisis due to the falling crude oil price, which reduced foreign exchange earnings, the apex bank decided to peg the currency and introduce curbs to protect reserves that are now at 11-year low at $27.67 billion.
The restrictions have been a long-drawn battle between the financial system regulator and the local/foreign portfolio investors, with JPMorgan delisting the country from its Government Bond Index-Emerging Markets.
MSCI said that the ease of capital inflows and outflows was one of the key criteria in its market classification framework- foreign exchange, which specifically appears to be the major issue cited by JPMorgan.
“Introduction of restrictive measures, such as capital or foreign exchange controls, which can lead to material deterioration of equity market accessibility, may result in the exclusion of such market from the MSCI Frontier Markets Indexes and a reclassification to Standalone Market status,” it warned.
The Global Chief Economist at Renaissance Capital, Charles Robertson, said the possibility that Nigeria might lose its place in the index had been a risk since it was excluded from key bond indices by JPMorgan and Barclays last year.
“Now the risk has become acute. Being excluded would create a higher hurdle to attracting future investments, as there would be no need for passive frontier market funds, which track the MSCI index, to hold Nigerian stocks.”
However, the Head of Investment Research at Afrinvest, Ayodeji Eboh, said: “Deregulating the downstream oil and gas sector remains the most efficient option. The protracted challenges in the currency market require more creative solutions as the ongoing fuel scarcity cannot be isolated from the difficulty in providing foreign exchange for the importation of petrol to meet domestic demand.
“Apart from the continuous delay in the 2016 budget implementation, the government is yet to communicate a well-articulated economic plan to drive market expectation and stabilise the system. A plethora of progressive and reflationary monetary and fiscal policies need to be put in place.”
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