What Moody’s Ratings Downgrade Means for the Market
A downgrade from any global ratings agency provides additional information for investing in the affected economy. For the capital market, it ought to affect perception but some market has peaked already in terms of how they perceive the combination of the risks available.
In Nigeria, market sentiment plus local investors’ doggedness often prevails in addition to large liquidity that is exposed to a double-digit inflation rate.
Ratings adjustment affected asset pricing in the international debt capital market more than it does on locally traded assets. More often, market sentiment prevails above external ratings for Nigerian Investors.
It means that the Nigerian government will pay more to borrow money from international debt capital market. Also, sovereign bond prices will decline, while yield is expected to rise in a bid to compensate investors for increased risks in an efficient market.
This raises a question about efficiency of the market to capture the information. Without mincing words, the Nigerian capital market is still in its growing phase.
After the ratings downgrade, stock market capitalization increased strongly…there was healthy buying momentum in the fixed income market. This development was supported by healthy liquidity in the market, plus there are few investment options where local investors could lock their funds.
To be precise, yields on FGN bonds declined to 13% while Treasury bills return continues to make an uptrend near 2%. The average yield on OMO bills printed at 2%, exposing naira assets to inflation rate pressures.
Moody’s ratings downgrade provides information for foreign capital market investors to understand the market they are planning to enter. If FG wakes up tomorrow to further adjust fiscal responsibility act in such a way as to allow Eurobond raise, book builders will start pricing looking at sovereign rating.
At Caa1 Nigeria will pay more to attract foreign investors than when it was at B! How does this affect local investors? It is unlikely to shake the market significantly. Moody’s ratings provides base information for local investors in addition to what they already know.
It will be double counting for the market to judge investment appraisal with Moody’s ratings…local investors are readily aware that political, economic, social, technical, and legal risks are positive.
Moody’s has no capabilities to assess Nigerian culture, sentiment and our inner wills. For real, Nigerians are unpredictable…when foreign portfolio investors (FPIs) left the local bourse, local investors take over – Fully.
When international oil companies began to exit the economy, local investors are taking over their assets which such convenience- Like, they are not missed. But there is a downside to not having foreign investors around, the dollar becomes so scarce that naira devaluation becomes automatic. #What Moody’s Ratings Downgrade Means for the Market
