JP Morgan: Foreign investors to dump Nigeria

dollars22-600x336The decision of JP Morgan to delist Nigeria from its Gov­ernment Bond Index (GBI-EM) by the end of October may deal a big blow to the economy as its ripples effect will weigh down the foreign reserves, foreign investment inflows, yield on eurobond and the stock market.

The JPMorgan Govern­ment Bond Index-Emerging Markets (GBI-EM) indices are comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging Market governments. The index was launched in June 2005 and is the first comprehensive global local Emerging Markets in­dex.

Analysts said the decision posed a threat to Nigeria’s for­eign reserves, which is likely to affect foreign investment. It will also impact the Naira, the yield on Nigeria’s debt and the country’s capital market.

The Head, Research & In­vestment Advisory of Sterling Capital, Mr.Sewa Wusu, said, though it was an opportunity for the nation to commence developing other sectors of the economy with potential for growth to boost foreign exchange earnings, the phas­ing out from the JP Morgan bond index would definitely have significant downside im­plication for Nigeria, particu­larly on the foreign exchange market.

According to him, the an­nouncement is expected to propel a massive sell-off of Nigerian instruments by for­eign investors who track the bond index from their portfo­lios, as the resultant effect is that the country may witness significant capital outflows.

He recalled, the impact of the decision three months ago when JP Morgan first an­nounced its intention before extending it by six months, that most foreign portfolio in­vestors sold down their bond positions due to the currency risk implication.

He noted that the Central Bank of Nigeria (CBN) has done a lot to curtail the ex­tremes in the foreign exchange market due to round tripping and arbitrage opportunities, while stating that there are other critical sectors that can induce positive growth, create jobs and make the country a productive economy and then contribute to increase foreign exchange earnings.

“If JP Morgan says there is no impact on Nigeria’s status in its EMBI or CEMBI suite of indices, why then do we worry as a nation? Or why then is our financial market responding negatively to this news? It is because our exter­nal reserves position is weak, solely dependent on oil re­ceipts,” he explained.

To him, instead of adjusting to the fully functional two-way foreign exchange market as expected by JP Morgan, the country’s national inter­est is very paramount to its development as a nation, hence suggesting that “we can quickly, as a nation, com­mence the path of developing other sectors of our economy with potential for growth to boost our foreign exchange earnings potential. Clear-cut policies should be adopted to fund these sectors e.g. mining, agriculture, health, construc­tion, education, tourism and transportation etc.” -The Sun


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