Oil Prices Doom: Why JPMorgan Removed Nigeria From Emerging Market list!

JPMorgan Removed Nigeria From Emerging Market list due to the inability of NNPC to transfer earned funds from January to March 2022 to  the Nigerian government due to petrol subsidies and low oil production.

JPMorgan Removed Nigeria From Emerging Market list
JPMorgan Removed Nigeria From Emerging Market list

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Findings by QUICK LOAN ARENA has revealed why JPMorgan, a global leader in financial services offering solutions to the world’s most important corporations, governments and institutions removed Nigeria from its list of emerging market list.

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The American multinational investment bank had 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.

JPMorgan Removed Nigeria From Emerging Market List Over Failure To Take Advantage of high oil prices

JPMorgan Removed Nigeria From Emerging Market list due to the inability of NNPC to transfer earned funds from January to March 2022
JPMorgan Removed Nigeria From Emerging Market list due to the inability of NNPC to transfer earned funds from January to March 2022

The inability of the Nigeria National Petroleum Corporation (NNPC) to transfer 3-month oil revenue to the Federal Government is what made JP Morgan removed Nigeria from emerging market list.

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JP Morgan emerging market sovereign recommended that investors should be ‘overweight’ in citing fiscal challenges, adding that Nigeria failed to take advantage of high oil prices.

The JPMorgan said it delisted Nigeria from the market following the NNPC’s inability to transfer earned funds from January to March to  the government due to petrol subsidies and low oil production.

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According to Reuters, JP Morgan’s analysts noted 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, which was the reason 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,” they said.

In Nigeria, its Senate last month approved the total sum of N4 trillion for petrol subsidy in 2022. The figure represented the amount contained in two separate requests by the President to the National Assembly for approval. The President, had in a letter to the Legislature dated 10th February, 2022, sought an additional N2.557 trillion to fund subsidy payments from July to December, 2022.

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However, JP Morgan moved Serbia to ‘overweight’ stating that risks had been priced in and the country had high reserves and a fiscally cautious government, while relatively low debt despite Russian exposure led them to put Uzbekistan in the same category.

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In addition, Reuters quoted analysts at the bank to have estimated that emerging market sovereign debt was at the “mercy” of the Federal Reserve’s interest rate decisions,  as the United States central bank’s rate raises drain capital from developing markets.

The move, analysts said could worsen the ability of Nigeria’s companies that borrowed in dollars to repay such credits as dollar crunch persists while also leading to further depreciation of the naira against global currencies.

Nigeria was replaced in the list with Serbia due to the country’s high reserves and a fiscally cautious government and also Uzbekistan due to its relatively low debt despite Russian exposure.

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

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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 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.

Russia’s invasion of Ukraine in February caused commodity prices to spike, benefiting exporters. The over-performance of bonds issued by oil exporters now “looks to have played out”, JPMorgan said.

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About the Author: Femi Adeoya

Mr Femi Adeoya is a Chartered Forensic Accountant and a Certified Fraud Examiner. He has over 20 years professional work experience in accounting, finance and business management processes. As an Accounting Software Expert, he has implemented and supervised accounting solution set up of over 50 small and medium businesses in Nigeria. As a passionate blogger, Mr Adeoya is an ardent writer and communicationist. He is the CEO of QUICK LOAN ARENA (quickloanarena.com), the number 1 loan apps review website in Nigeria. He is very passionate about the quick and instant loan industry in Nigeria and has written over 200 reviews on different loan apps and digital banks in Nigeria, USA, Canada and UK.

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