JP Morgan threatens to remove Nigeria from key bond index

<div style="text-align: justify;"> By Peter Egwuatu, Michael Eboh with agency reports</div> <div style="text-align: justify;"> LAGOS — JP Morgan has threatened to remove Nigeria from its Government Bond Index (GBI-EM) by the year-end unless the Central Bank of Nigeria, CBN, restores liquidity to foreign exchange market to allow foreign investors tracking the benchmark to transact with minimal hurdles.<br /> The bank said, weekend, it had extended the deadline to eject Nigeria by another six months to take into account the arrival of President Muhammadu Buhari.</div> <div style="text-align: justify;"> Nigeria held closely-fought presidential elections in March, in which opposition leader Buhari defeated incumbent President Goodluck Jonathan in the country’s first transition of power through the ballot box.</div> <div style="text-align: justify;"> JPMorgan, which runs the most commonly used emerging debt indexes, placed Nigeria on a negative index watch in January and then said it would assess its place on the index over a three to five months period.</div> <div style="text-align: justify;"> <br /></div> <div style="text-align: justify;"> “Nigeria’s status in the GBI-EM series will be finalized in the coming months but no later than year-end,” JPMorgan said.</div> <div style="text-align: justify;"> <br /></div> <div style="text-align: justify;"> Implications<br /> Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows. This in turn would raise borrowing costs for Africa’s largest economy, already suffering from a sharp drop revenue following a plunged in oil prices.</div> <div style="text-align: justify;"> <br /></div> <div style="text-align: justify;"> Nigeria’s forex and bond markets have come under pressure after the price of oil, Nigeria’s main export, plunged. In response, the central bank fixed the exchange rate in February after devaluing the naira last year and tightened trading rules to curb speculation. The naira has lost 8.5 percent this year.</div> <div style="text-align: justify;"> “If we are unable to verify these factors, a review of Nigeria’s status within the benchmark for removal will be triggered,” it said in report, adding that the factors included a liquid currency market. Analysts did not expect JPMorgan to remove Nigeria.</div> <div style="text-align: justify;"> <br /></div> <div style="text-align: justify;"> JPMorgan added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included. It added Nigeria’s 2014, 2019, 2022 and 2024 bonds.</div> <div style="text-align: justify;"> The bank said Nigeria continues to remain eligible for the GBI-EM index, which has around $210 billion in assets under management benchmarked to it, with a weight of 1.8 percent.</div> <div style="text-align: justify;"> The central bank last week made a tiny adjustment to its exchange rate peg to the dollar, which one analyst said may indicate that it is beginning to think.</div>

JP Morgan threatens to remove Nigeria from key bond index

By Peter Egwuatu, Michael Eboh with agency reports LAGOS — JP Morgan has threatened to remove Nigeria from its Government Bond Index (GB...

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