More Bad News For The Nigeria ETF

Things just keep getting worse for the Global X MSCI Nigeria ETF (Global X Funds NGE), the lone exchange-traded fund dedicated to Nigerian stocks.

Inflation, Currency Woes Weigh On Nigeria

As has been previously noted in this space, NGE has been struggling this year even as oil prices and emerging markets equities rallies. To be precise, Nigeria is classified as a frontier market, but NGE is still lagging the iShares MSCI Frontier 100 ETF FM. While Brent crude, the contract in which Nigeria prices its oil, is one of this year's best-performing assets and FM is higher by more than four percent, NGE has lost nearly a third of its value.

Rising inflation and foreign currency woes are plaguing the Nigerian economy. Nigeria's central bank is actively trying to solve those problems. In July, the central bank there boosted interest rates by 200 basis points to a Brazil-esque 14 percent, marking the second rate hike this year. That move may have been too little too late as far as some index providers are concerned.

Related Link: A Reason To Say Oui To The France ETF

Earlier this week, MSCI, the index provider for the underlying benchmarks tracked by FM and NGE, said it has placed Nigeria on a list for a potential reclassification to Standalone status as part of the index provider's 2017 annual market classification review. In the indexing world, Standalone status is like detention or purgatory.

Classification Reviews And Implications

If Nigeria is sent packing to Standalone status, it would join such luminaries of the global economy as Jamaica, Trinidad and Tobago and Ukraine.

Sarcasm aside, Standalone status would be a blow to Africa's largest economy. It would like make accessing capital more expensive while providing a blow to Nigerian stocks because ETFs like FM and active funds that benchmark to MSCI frontier indexes would be forced to dump Nigerian equities if the country is reclassified.

Nigeria, Africa's largest oil producer and a member of the Organization of Petroleum Exporting Countries (OPEC), is currently FM's fourth-largest country weight at just under seven percent. There was a time when the country was the second-largest geographic weight in that ETF at more than double its current weight.

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