FTSE RE-ENTRY TRIGGERS FOREIGN DEMAND FOR NIGERIAN EQUITIES

Foreign and institutional investors have renewed interest in Nigerian equities following the country’s return to FTSE Russell’s Frontier Market indexes.

The reclassification triggered increased trading activity in major banking stocks on Monday, with Zenith Bank, Guaranty Trust Holding Company and FirstHoldCo among the companies attracting significant demand.

Nigeria’s return to the FTSE Russell indexes follows a difficult period for the country’s capital market. In September 2023, FTSE Russell moved Nigeria to “Unclassified” status because of foreign exchange illiquidity, trapped capital and large FX backlogs that made it difficult for foreign investors to repatriate funds.

The Central Bank of Nigeria subsequently implemented reforms aimed at clearing verified FX backlogs, improving naira stability and strengthening the country’s financial market infrastructure.

The market also migrated to a T+1 settlement cycle in June, reducing the time required to complete securities transactions.

FTSE Russell subsequently confirmed that Nigeria had met all five of its quality-of-markets requirements, paving the way for the country’s return to the Frontier Market indexes.

The reclassification became effective at the opening of trading, allowing international benchmark funds to begin adjusting their portfolios to reflect Nigeria’s renewed status.

Market analysts expect large and liquid financial institutions to remain among the key beneficiaries as portfolio managers rebalance their holdings and tracking funds make allocations.

The development also comes as eligible Federal Government of Nigeria bonds offer yields of around 17.10 per cent, potentially providing foreign investors with an attractive carry opportunity in the domestic fixed-income market.

Nigeria is also set to have its equities included in the FTSE Frontier Index, giving the country representation across both equity and fixed-income investment benchmarks.

An analyst at Meristem Securities said the development could increase foreign demand for naira-denominated government securities as benchmarked investors begin allocating funds to Nigerian bonds.

The analyst said increased participation could broaden the investor base, improve secondary-market liquidity and potentially support lower bond yields if foreign inflows are sustained.

The analyst also noted that stronger foreign inflows could improve foreign exchange liquidity, while warning that increased international participation could make the market more sensitive to global risk sentiment and exchange-rate movements.

According to the analyst, this could increase the risk of capital reversals during periods of financial market stress.

Research analysts at Coronation said positive market sentiment could continue in the near term, supported by potential passive fund inflows following Nigeria’s reclassification to Frontier Market status.

They said the reclassification could generate additional demand from funds that track FTSE Russell indexes and provide a near-term catalyst for the Nigerian market.

Commenting on the development, the Group Managing Director and Chief Executive Officer of NGX Group, Temi Popoola, described Nigeria’s restoration to FTSE Russell’s Frontier Market status as recognition of improvements in the country’s capital market and its supporting infrastructure.

Popoola said the reclassification should be viewed as an opportunity to attract greater international attention and convert that visibility into long-term investment.

He also pointed to renewed interest among major Nigerian businesses in using the capital market to raise funds and broaden ownership.

He said NGX Group would continue working to improve the efficiency, accessibility and depth of the market while strengthening connections between Nigerian businesses and investors in Nigeria, Africa and other parts of the world.