Nigerian bonds: analysis

Africa mapPension funds seeking emerging market local currency bonds have one more issuer to choose from. This week Nigerian government bonds entered the emerging market local currency universe with their inclusion in the JP Morgan Global Diversified Index, the most followed emerging market debt index. This brings the constituents of the index up to 15. Reuters quoted JP Morgan as saying that $1.5 billion (€1.2 billion) could flow into Nigerian bonds. The 2012 Asset Allocation Survey published in May by Mercer, an investment consultancy, said 9.5% of European pension schemes and 8.4% of UK schemes were looking to increase their allocations to emerging market debt over the next 12 months. The bonds reacted to the JP Morgan announcement by returning up to 17% in price terms for bonds maturing in 2022 over two weeks, according to South Africa-based asset manager Investec. Yields dropped by 0.16 percentage points to 12.66%, Bloomberg reported. Yields on Nigerian bonds are currently between 12% and 14%, which Investec said made Nigeria the highest yielding bond market in the index after Brazil at 8.54%. In a world characterised by historically low returns, such yields, coupled with a highly managed currency, are very likely to attract growing investor attention, said the firm. Nigeria has the second largest GDP on the continent and over the past five and ten years, the country’s average economic growth has been 7% and 8% respectively, making it one of the world’s ten fastest growing economies. But there are challenges, noted Investec: The country still relies heavily on oil; vested interests in several key industries pose a challenge to reforms; the three-part nature of government makes implementing fiscal policies difficult; infrastructure is in dire need of investment; there is a high level of language and cultural diversity which, at times, has lead to violence.  To be included in the JP Morgan index a country needs to attain a minimum classification as a lower-middle income country for two years by the World Bank, and then demonstrate sufficient liquidity in its bond markets. ©2012 funds europe

Executive Interviews

INTERVIEW: Put your money where your mouth is

Jun 10, 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

May 13, 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

Oct 13, 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

Sep 07, 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.