Nigeria’s Sovereign Debt Upgraded to Overweight
Oxford Economics said that continued high oil prices and an easing of global funding conditions were supportive for Nigerian assets and as a consequence it upgraded Nigerian sovereign bonds in US dollars (USD) to overweight from neutral.
In the first half of the year, JPMorgan removed Nigeria from its list of emerging market sovereign recommendations that investors should be ‘overweight’ in, saying the country had not taken advantage of high oil prices while adding Serbia and Uzbekistan.
Emerging market sovereign debt is at the “mercy” of the Federal Reserve’s interest rate decisions, JPMorgan analysts said in a note, as the U.S. central bank’s rate raises drain capital from developing markets.
In a twist, Oxford Economics has seen a different trajectory amidst global monetary policy tightening. In the local debt capital market, Central Bank of Nigeria (CBN) funding costs has inched upward due to interest rate hikes.
The Nigerian government was likely to reduce fuel subsidies after the February elections, as the cost had been exorbitant and came at the expense of other budget priorities, Oxford Economics noted.
It recognises that dwindling oil production and weak security on existing infrastructures had become a major political issue, but Oxford Economics anticipated the next government will take concrete steps to improve the situation.
Macro fundamentals had arguably deteriorated, but unlike many other African economies, Nigeria didn’t face a surge in external financing requirements, it added.
Debt levels remained manageable, and the foreign exchange (FX) reserves buffer was still “relatively comfortable”. Overweight is an outsized investment in a particular asset, asset type, or sector within a portfolio.
Overweight, rather than equal weight or underweight, also reflects an analyst’s opinion that a particular stock will outperform its sector average over the next eight to 12 months, according to Investopedia. #Nigeria’s Sovereign Debt Upgraded to Overweight