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JPMorgan: Investors lose N311bn in 24 hours
Investors in the equities segment of the Nigerian Stock Exchange recorded heavy losses as stocks plunged on Wednesday, a day after JP Morgan said it would remove Nigeria from its government bond index.
A sell-off in the stock market, triggered by the move, saw the market capitalisation of the listed equities fall by N311bn or 2.98 per cent from N10.439tn to N10.128tn, while the NSE All-Share Index declined by 904.78 basis points (2.98 per cent) to 29,454.09 basis points.
Wednesday’s losses virtually erased the N331bn gain made by equities in the last three trading sessions.
The decision by United States-based lender, JP Morgan, to phase Nigeria out of its Government Bond Index by the end of September, comes amid uncertainty about Nigeria’s economy, which has held investors – especially foreign portfolio investors – back, leaving the capital market struggling.
Financial analysts believe the decision, which the lender based on lack of liquidity and transparency in the nation’s foreign exchange market, would lead to significant outflows from the capital market and that it is responsible for Wednesday’s sell-off in the equities market.
The Head, Equity Research, FBN Capital Limited, Mr. Olubunmi Asaolu, explained in a telephone interview that while the index in question was a fixed income (bond) index, the move by JP Morgan sent warning signals to investors.
He said that while investors tracking the index were unlikely to move their funds until the country was actually removed from the index, investors in equities were unlikely to wait.
The implication in the equities market, he said, “is that if JP Morgan feels that the Nigeria forex market is not liquid enough for them, that is a bit worrying to other people who have to change their dollars to naira first to buy things; the most obvious one is the equities market.”
He said although many might have seen the move coming, the announcement made it official and the risk more real to investors.
He added, “This means that if it is a little bit difficult to get my dollars from the CBN, and the CBN will tell you it is not that difficult, this decision makes a little more difficult potentially.”
As a result, he said people were not going to wait to find out if it was potentially true or not, stressing, “And that is why we are seeing this move on the equities market.”
Asaolu, however, said it was not likely that things would get to the point where foreign investors would be struggling to get their money out of Nigeria.
“We’ve not had any major problems with people selling their equities and struggling to get their money out; it has not really happened. But the investors do not wait to find out if that will happen,” he said.
Analysts at Renaissance Capital said, “On the flipside, we expect to see mark-to-market losses coming through for banks, particularly those with proportionately higher investments in bonds given the upward bias in yields.”
However, the CBN had said it rejected the decision by JP Morgan to delist Nigeria from the bond market.
In a joint statement by the CBN, Debt Management Office and Ministry of Finance, it said, “While we respect the right of the JP Morgan to make this decision, we would like to strongly disagree with the premise and conclusions upon which the decision rests.”
“Despite these positive outcomes, the JP Morgan would prefer that we remove this rule; even though it is obvious that doing so would lead to an indeterminate depreciation of the naira. With dwindling oil prices, we believe that an order-based two-way market best serves Nigeria’s interest at the moment.”
Meanwhile about N1.5tn ($8bn) in foreign portfolio investments is expected to leave Nigeria by the end of October this year when the American lender, JP Morgan, completes the process of delisting the Federal Government Bonds from its Global Bond Index-Emerging Markets, CBN’s documents have shown.
Nigeria became the second African country after South Africa to be listed on the JP Morgan’s emerging markets government bond index in October 2012.
This came after the CBN removed the restriction for foreign investors to hold government bonds for a minimum of one year before they could exit, among other policies that favour foreign investors.
The index (GBI-EM) has around $210bn in assets under management benchmarked to it. The benchmarking supports investor demand for the bonds on the index.
The index added Nigeria’s 2014, 2019, 2022 and 2024 bonds, giving the economy a weight of 1.8 per cent on the index.
JP Morgan, however, placed Nigeria on what it called ‘Negative Index Watch’ in January this year and warned that currency controls introduced by the CBN were making bond market transactions too complex to meet its rules.