Nigeria’s return to the FTSE Russell Frontier Market indexes has sparked renewed interest from foreign and institutional investors, with major banking stocks recording increased trading activity at the Nigerian Exchange on Monday.
The reclassification, which took effect at the start of trading, marks a major development for Nigeria’s capital market after the country was removed from FTSE Russell’s indexes in September 2023.
FTSE Russell had moved Nigeria to “Unclassified” status after persistent foreign-exchange liquidity problems, trapped investor funds and large FX backlogs made it difficult for international investors to repatriate their capital.
The latest decision followed reforms by the Central Bank of Nigeria aimed at clearing verified FX obligations, improving naira liquidity and strengthening the country’s financial-market infrastructure.
The introduction of a T+1 settlement cycle in June was also among the market reforms that helped Nigeria meet FTSE Russell’s five quality-of-markets criteria for re-entry.
Following the reinstatement, Zenith Bank Plc, Guaranty Trust Holding Company Plc and FirstHoldCo Plc emerged among the equities attracting strong initial demand as investors began adjusting portfolios to reflect Nigeria’s return to the frontier-market benchmark.
Analysts expect the reclassification to generate additional demand for Nigerian securities as funds that track FTSE Russell indexes reposition their holdings.
An analyst at Meristem Securities Limited said the development could also increase foreign participation in naira-denominated government securities.
“We expect the inclusion to increase foreign demand for naira-denominated government securities as benchmarked investors begin to allocate to Nigerian bonds,” the analyst said.
According to the analyst, increased participation could deepen the investor base, improve secondary-market liquidity and potentially put downward pressure on bond yields if foreign inflows are sustained.
The analyst, however, noted that stronger foreign participation could expose the market to increased sensitivity to global risk sentiment and exchange-rate movements, creating the possibility of reversals during periods of market stress.
Research analysts at Coronation also said positive sentiment could continue in the near term, driven by potential passive fund inflows following Nigeria’s return to frontier-market status.
“We expect the positive sentiment to persist in the near term, supported by potential passive fund inflows following Nigeria’s reclassification to frontier market status by FTSE Russell,” they said.
They added that the reclassification could increase demand from funds tracking FTSE Russell indexes and provide a near-term catalyst for the domestic equities market.
Nigeria’s government bonds, offering yields of about 17.10 per cent, are also expected to benefit from renewed foreign investor attention, particularly as the country regains representation across international fixed-income and equity benchmarks.
Commenting on the development, NGX Group Managing Director and Chief Executive Officer, Temi Popoola, described Nigeria’s restoration to FTSE Russell’s Frontier Market status as recognition of improvements in the country’s capital-market infrastructure.
“Nigeria’s restoration to FTSE Russell’s Frontier Market status is an important recognition of the progress made in our capital market and the strengthening of the infrastructure that supports it,” Popoola said.
He said the reclassification should be viewed as a gateway to greater international attention rather than an end in itself.
According to him, the renewed visibility could help attract long-term investment and strengthen the role of the Nigerian capital market in financing businesses and economic growth.
Popoola also said renewed interest from major Nigerian companies in raising capital through the market made it important for the NGX to improve efficiency, accessibility and market depth.
He said NGX Group would continue working to strengthen links between Nigerian businesses and investors within the country, across Africa and internationally.
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