JPMorgan has removed Nigeria from its list of emerging market sovereign recommendations that investors should be “overweight” in, saying the country has not taken advantage of high oil prices.

Analysts at JPMorgan, who stated this in a note issued yesterday, said that Russia’s invasion of Ukraine in February caused commodity prices to spike, benefiting exporters, but that the over-performance of bonds issued by oil exporters now “looks to have played out.”

The U.S. lender said that the Nigerian National Petroleum Corporation (NNPC) did not transfer any revenue to the government from January to March this year, due to petrol subsidies and low oil production, as it moved Nigeria’s debt out of its “overweight” category.

“Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment,” the analysts said.

The global agency, however, added Serbia and Uzbekidtan. It moved Serbia to “overweight” as risks had been priced in and the country had high reserves and a fiscally cautious government, the note said, while relatively low debt despite Russian exposure led them to put Uzbekistan in the same category.

The analysts said that emerging market sovereign debt was at the “mercy” of the Federal Reserve’s interest rate decisions, as the U.S. central bank’s rate raises drain capital from developing markets.

Last week, the Fed raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, as it seeks to tame high inflation while its rate increases also buffet higher yielding emerging markets.

JPMorgan’s Emerging Markets Bond Index Global Diversified (EMBIGD) index has fallen 16 per cent this year, the analysts said, “with most of the losses having come from rates” and $4 billion in net outflows from emerging markets since mid- April.

“The external and fundamental backdrop has become increasingly difficult for EM sovereigns,” the analysts said.

“The COVID lockdown in China poses further downside risks,” they added.

They noted that riskier sovereign yields were now 10.6 per cent, the highest level since the first wave of the coronavirus pandemic in April 2020, reducing market access and increasing the risk of debt defaults.

However, the analysts said the “front-loaded pain” for emerging market bonds, which they said had begun underperforming in September 2021, was a positive.

It was reported that after warning the Nigerian government that currency controls were making transactions too complicated, JP Morgan, in September 2015, announced that it will remove Nigeria from its Government Bond Index (GBI-EM) by the end of October that year. (New Telegraph)

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