J.P. Morgan has included Nigeria in its new emerging markets index, assigning a 7.4 percent weighting to the West African nation.
The index, which tracks local-currency government bonds
across frontier — also known as the Government Bond Index–Emerging Markets Edge
(GBI-EM Edge) — is expected to be launched by the end of September, Reuters
reported on Monday.
According to reports, the new benchmark will track about
$330 billion in local-currency government debt across 26 countries, with
Nigeria listed among its major constituents alongside Egypt, Vietnam, Morocco,
Kazakhstan, Bangladesh, Pakistan and Sri Lanka.
J.P. Morgan’s index gives individual countries a maximum
weighting of 8 percent.
The development comes nearly 11 years after Nigeria was
removed from J.P. Morgan’s GBI-EM in 2015.
Nigeria’s 7.4 percent weighting would make it one of the
largest markets represented in the new benchmark, potentially increasing the
visibility of its domestic government securities among global fixed-income
investors.
Reuters reported that J.P. Morgan has been working on the
new index for years amid growing investor appetite for high-yielding government
debt in frontier markets.
The index is expected to include government bonds with a
minimum equivalent value of $250 million and at least 2.5 years to maturity.
African markets are also expected to account for almost 45
percent of the index, while frontier Asian markets will make up nearly
one-third.
The report said the benchmark is expected to have an average
nominal yield of about 10.4 percent, around 440 basis points higher than J.P.
Morgan’s emerging-market local-currency index.
Back-testing, according to Reuters, showed that the new
index would have generated returns about 1.2 percentage points higher than the
mainstream emerging-market local-currency index since the end of 2017.
Bond indices are closely watched by global fund managers
because investors often use them as benchmarks for allocating money across
markets.
The latest development comes months after the federal
government said it was in talks with J.P. Morgan to be admitted back into its
government bond index for emerging markets.
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