Nigeria’s new administration was given more time to inject life back into currency trading and avoid being cut from JPMorgan Chase & Co.’s emerging market bond indexes, tracked by more than $200 billion of funds.
A decision on whether to remove Nigeria from JPMorgan’s GBI-EM indexes will be “finalized in the coming months” to give the government time to settle in, the New York-based lender said in a statement dated June 5. Africa’s largest economy has a 1.8 percent weighting in the gauge.
“It is in no one’s interest to have Nigeria removed from the index,” Samir Gadio, the head of African strategy at Standard Chartered Plc in London, said in an e-mail on June 6. “From an investor standpoint, Nigeria is the highest-yielding diversifier in a GBI-EM context. That said, further normalization in FX market conditions will probably be needed to ensure long-term GBI-EM inclusion.”
JPMorgan placed Africa’s largest oil producer on “index watch negative” on Jan. 16, saying central bank measures in December had reduced foreign-exchange and bond trading and made it difficult for investors to replicate the gauge. The lender had said it would make a decision within five months. Average yields on Nigerian government bonds were 14.1 percent on June 5, the most among 31 emerging markets tracked by Bloomberg.
Restricted naira liquidity may force President Muhammadu Buhari, who took office on May 29 after ushering in the country’s first democratic transition of power, to ease trading conditions, Bloomberg strategist Mark Cudmore said last month. About $4 billion of Nigerian local-currency bonds could be impacted by JPMorgan’s decision, he said. Read more
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