To this point in Thursday’s session, just one exchange traded fund has touched an all-time low. That dubious honor belongs to the Global X Nigeria Index ETF (NYSEArca: NGE).
Down nearly 2% today, NGE, the lone ETF dedicated to Africa’s largest economy, is now down a staggering 26.4% over the past 90 days, a decline that has exacerbated by tumbling oil prices. NGE has been ina bear market as the slump in the energy market pummeled Africa’s largest oil producer and a depreciating local currency scares away foreign investments. [Oil Drags Nigeria ETF Into Bear Market]
Nigeria, which earlier this year became Africa’s largest economy as measured by GDP, is also home to the continent’s second-largest equity bourse, but oil charts the course for government revenue, Nigerian equities and NGE.
As the 12th-largest oil producer in the world and eighth-largest exporter, Nigeria is home to the world’s 10th-largest proven crude reserves with oil driving 40% of GDP and 80% of government receipts, according to Rareview Macro founder Neil Azous.
NGE allocates 9.5% of its weight to energy stocks, the ETF’s third-largest sector weight behind financial services and consumer staples.
Highlighting the recent (and glum) price action in Nigerian stocks, Azous notes, “The Nigerian Stock Exchange All Share Index (symbol: NGSEINDX) was -3.65% and was the worst market among the 93 primary indexes tracked by Bloomberg. Additionally, on YTD value % change (-20.39%) or YTD value % change adjusted by the currency (-27.25%) Nigeria solidified its ranking as the worst performing market in the Middle East and Africa.”
Weakness in Nigerian stocks has plagued ETFs beyond NGE. As a result of the promotion of Qatar and the United Arab Emirates to emerging markets status earlier this year, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) has boosted its allocation to Nigeria to almost 12.2%, making the country the ETF’s second-largest country weight behind Kuwait. [Frontier Market ETFs for Global Opportuities]
FM’s increased Nigeria exposure has been a thorn in the ETF’s slide, in part explaining the fund’s nearly 10% tumble over the past three months.
Declines for NGE and FM have coincided with the Nigerian naira record lows against the U.S. dollar. Azous says the government’s 2015 budget requires oil at $73 per barrel. West Texas Intermediate futures currently hover around $75.50 per barrel.
Global X MSCI Nigeria ETF