Nigeria is set to return to a major JP Morgan government bond index after an 11-year absence, giving the country renewed visibility among international fixed-income investors.
Nigeria has been assigned a 7.4 per cent weighting in the newly introduced Government Bond Index–Emerging Markets Edge, which tracks local-currency government debt across frontier markets.
Nigeria Gets 7.4% Weighting
The new index is expected to track about $330 billion in local-currency government bonds across 26 countries.
JP Morgan has set an 8 per cent maximum weighting for individual countries, placing Nigeria’s 7.4 per cent allocation close to the upper limit.
Other countries included in the benchmark include Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan and Sri Lanka.
The index is expected to be launched before the end of September.
Why Nigeria Was Removed in 2015
Nigeria was previously included in JP Morgan’s Government Bond Index–Emerging Markets but was removed in 2015 following concerns about the country’s foreign exchange market.
At the time, international investors faced difficulties moving money into and out of Nigeria at a transparent and reliable exchange rate.
The development contributed to Nigeria losing its place on the benchmark.
Return Could Attract Foreign Investors
Nigeria’s re-entry could increase the visibility of its domestic government securities among global fund managers that use bond indices to guide investment decisions.
A 7.4 per cent weighting does not mean JP Morgan is directly investing 7.4 per cent of the $330 billion into Nigeria. Rather, funds tracking the index could allocate a similar proportion of their portfolios to eligible Nigerian bonds.
Greater foreign participation could increase demand for Nigerian government securities and improve liquidity in the domestic bond market.
However, investors will continue to consider factors such as inflation, exchange-rate stability, foreign-exchange liquidity and the government’s fiscal position when deciding whether to invest.
Nigeria’s return therefore provides an opportunity to attract more international capital, while also placing greater emphasis on maintaining stability and investor confidence.
