By Abubakar Yunusa
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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