MSCI Inc. said it needs more time to assess the impact of foreign exchange reforms in Nigeria, suggesting the global index provider is not yet ready to restore the West African’s country’s stocks to frontier-market status.
Operational modifications in Nigeria’s foreign exchange market have improved liquidity, but “more time is needed to assess the impact of these changes,” MSCI said in its annual market accessibility review.
Nigeria was removed from the MSCI Frontier Markets Index in February 2024 and downgraded to Standalone Markets status due to persistent liquidity challenges in the foreign exchange market that left many foreign investors unable to repatriate profits and dividends.
The MSCI Nigeria Index is designed to measure the performance of the large and mid cap segments of the Nigerian market. With 16 constituents, the index covers approximately 85% of the Nigerian equity universe.
The top-ten components of the MSCI Nigeria Index currently are : Guaranty Trust Holding Company (GTCO), Zenith Bank, Seplat Energy, Access Holdings, Fidelity Bank, United Bank for Africa, First HoldCo, MTN Nigeria, Dangote Cement and Nigerian Breweries.
The new assessment means that Nigeria is unlikely to be upgraded when MSCI announces the results of its annual classification review on June 24.
Countries included in the index typically see greater foreign investor participation, resulting in higher valuations.
An upgrade could also boost capital flows to Africa’s largest crude producer. Some $16.5 trillion in Assets Under Management (AUM) were benchmarked to MSCI equity indexes as at June 2024.
Nigeria has in recent years implemented a series of reforms designed to stabilize the naira and attract more foreign investment.
President Bola Tinubu eased the naira’s peg against the dollar in 2023, triggering a 70% devaluation against the dollar that took most of last year to fade.
MSCI noted in its report that Nigeria maintains constraints on its onshore currency market.
Not all information on market regulations is readily available to foreign investors, who also struggle to obtain details on shareholding structures at the country’s banks, MSCI added.
MSCI is a global provider of equity, fixed income, real estate indices and multi-asset portfolio analysis tools.
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