By Tosin Sulaiman
JOHANNESBURG Aug 15 (Reuters) – Nigeria is likely to be
included in JP Morgan’s Government Bond Index – Emerging Markets
(GBI-EM) from October, potentially bringing up to $1 billion
into one of Africa’s most developed debt markets, the bank said
on Wednesday.
The inclusion of the continent’s top crude oil producer,
which will become the second African constituent of the index
after South Africa, will be phased over three months, from Oct.
1 to Dec. 3., JP Morgan said.
With around $170 billion of assets under management
benchmarked against the index and given that Nigeria is expected
to have a weight of 0.59 percent in the index by December 3,
there could be over $1 billion flowing into its local bond
market in the coming months, said Giulia Pellegrini, JP Morgan
economist and strategist for Sub-Saharan Africa.
“This is a game-changer for the Nigerian bond market,” she
said. “With yields currently north of 16 percent, offering a
hefty premium to the current GBI-EM Index yield of 5.8 percent,
that estimate may well be revised to the upside as investors are
attracted by the possibility to capture higher returns than in
the other local markets in the index.”
Inclusion in the index would also support the efforts of the
Nigerian government to deepen the bond market, Pellegrini added.
The total domestic debt stock is currently around $38 billion,
including federal government bonds (accounting for $23 billion),
as well as state government and corporate bonds.
“It raises the visibility of the Nigerian bond market on the
international scene, placing what has been so far deemed a
“frontier” market a step closer to more mainstream investment
destinations,” she said.
Three Nigerian bonds, maturing in 2014, 2019 and 2022, will
be eligible for the GBI-EM as they are the most liquid, though
the list may be subject to change depending on market
conditions. Inclusion of more bonds in the index is possible in
the future, Pellegrini said.
The move follows the announcement in April that South Africa
would be included in Citi’s World Government Bond Index in
October. Citi estimates that up to $7.5 billion could flow into
the country’s bond market as a result.
Continued…
