Investors jittery over N100bn foreign investment withdrawal threat

United Bank for Africa is among other quoted companies on the floor of the Nigerian Stock Exchange whose stocks are going to be affected by the withdrawal of Morgan Stanley Capital International, foreign investment index from the NSE.

UBA has the highest MSCI-linked foreign investment volume of 54.1 million shares followed by First Bank of Nigeria Plc. with 48.1 million and GTB with 23.5 million shares.

Also amongst the top ten equities to be affected by the withdrawal are Zenith Bank Plc with MSCI-linked 23.1 million shares, Ecobank Plc with 12.2 million shares, Nigerian Breweries Plc with 6.9 million shares and Unilever Nigeria Plc with 5.7 million shares valued.

Others affected in lower magnitude includes Lafarge Cement with 2.2 million shares, Dangote Cement Plc with 1.5 million shares and Nestle Nigeria Plc with 0.5 million shares.
MSCI, a US-based provider of equity, fixed income, and hedge fund stock market indexes had announced earlier in April it was considering yanking off Nigeria from its MSCI Emerging market index.

This decision, according to experts might not be unconnected with the introduction of restrictions on foreign currency trading in Nigeria by the Federal Government.

Equity investors in the Nigerian bourse had lost over N174 billion in the first trading day after the announcement of the intention to withdraw, precisely on Monday, April 11, 2016 and this was followed by moderated losses on the second and third days that culminated into a week loss of about N206 billion.

The total volume of investments outstanding as at Friday was about 177 million shares worth about USD500 million (N100 billion on official exchange rate) in 15 companies.
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

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“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, AyodejiEboh, 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.”