Exchange traded funds tracking emerging and frontier markets from Argentina to Russia have been plagued by geopolitical tensions this year.
Add Nigeria and the Global X Nigeria Index ETF (NYSEArca: NGE) to that list. Since the start of February, a time frame in which many emerging markets ETFs have rallied, NGE is off 3.6%. Over the same time, the iShares MSCI Frontier 100 ETF (NYSEArca: FM), in which Nigeria is the fourth-largest country allocation at a weight of 11.4%, is higher by almost 5.1%.
NGE’s woes have been in part stoked by bloodshed at the hands of insurgent group Boko Haram. More than 1,300 people have died in Nigeria in the past two months and “Boko Haram has intensified its operations of late, including an attack that saw 43 students shot and hacked to death and many girls kidnapped,” reports the Guardian.
Militant groups, long a problem for Nigeria and a deterrent to the country attracting more foreign direct investment, are exploiting ordinary Nigerians’ dissatisfaction with long-standing government corruption and a widening gap of inequality.
Late last month, NGE tumbled on heavy volume on news Nigerian President Goodluck Jonathan suspended Central Bank Governor Lamido Sanusi. Sanusi was suspended, many believe, due to his criticism of Jonathan’s inadequate track record of fighting corruption, arguably one of the top issues that have kept global investors from becoming more enchanted with the country’s economic potential. [Nigeria ETF Tumbles on Central Bank Flap]
Bloodshed in Nigeria and its subsequent impact on the country’s economy and equities arguably could not come at a worse time. Nigeria, an OPEC member that vies with Angola to be Africa’s top oil producer, has been force to look for new export markets for its crude due to the U.S. shale boom. Additionally, economists expect Nigeria to surpass South Africa as Africa’s largest economy this year.
It is not just NGE that will be crimped if tensions do not abate in Nigeria. Nigeria’s weight in MSCI frontier indices could approach 21% later this year when the index provider moves Qatar and the United Arab Emirates to emerging markets status, meaning the African nation will likely be the second-largest country weight in FM behind Kuwait. [Frontier Markets ETFs Keep Winning]
Global X Nigeria Index ETF