JPMorgan, American multinational investment bank, has removed Nigeria from its list of emerging market sovereign recommendations that investors should be ‘overweight’ in.
An overweight investment is an asset or industry sector that makes up a larger percentage of a portfolio or index than is typical. When a bank gives an asset an overweight recommendation, it means the bank believes the asset will outperform its sector in the coming months.
However, Nigeria was removed from the bank’s “overweight” emerging market sovereign recommendations due to the country’s failure to avoid taking advantage of high oil prices, based on Reuters.
JPMorgan, added that Emerging market sovereign debt is at the “mercy” of the Federal Reserve’s interest rate decisions.
JPMorgan analysts further explained that the delist was cause by Nigeria’s national oil company inability to transfer any revenue to the government from January to March this year, due to petrol subsidies and low oil production.
The bank said, “Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment,”.
Serbia was upgraded to ‘overweight’ because risks had been priced in, and the country had large reserves and a fiscally conservative government, according to the report, while Uzbekistan was placed in the same category due to its comparatively low debt despite its Russian exposure.
Economic growth in emerging markets is set to slow “sharply” this quarter weighed by China, Russia and the spread of tighter monetary conditions, JPMorgan analysts said
JPMorgan’s Emerging Markets Bond Index Global Diversified (EMBIGD) index has dropped 16% this year, “with most of the losses having come from rates” and $4 billion in net outflows from emerging markets since mid-April, according to JPMorgan analysts.
Furthermore, rising dollar strength would put additional burden on Nigeria, as the country would have to pay a higher interest rate to entice people to acquire dollar-denominated bonds issued by EM sovereigns and corporations.
