Nigeria bonds sold off in the second quarter (Q2) of 2024 as bond investors signaled that good government counts for more than high yields in emerging markets.
However, the latest twist in US politics is prompting emerging-market investors to re-examine some of the most battered assets in the developing world including Nigeria and India Bonds.
The lack of clarity ahead — Kamala Harris’ policies and her odds against Donald Trump in the November vote are still unknown — has investors from Van Eck Associates to Robeco bracing for volatility.
To shield themselves from swings, they’re recommending hard-hit assets, like those in Brazil, or ruled by more domestic drivers than global politics, such as India and some frontier economies like Nigeria.
Joe Biden’s withdrawal from the US presidential race led to the unwinding of some early so-called “Trump trades,” with Latin American currencies like the Mexican peso rallying on Monday.
“We need to be careful in not overtrading the US election as it is still quite early and likely to remain volatile,” said Thys Louw, a portfolio manager at Ninety One UK Ltd. “We’ve tried to keep risk focused on trades we see as having strong enough domestic performance drivers,” Louw said.
Investors are gradually embracing Nigerian debt markets which while still providing a high return in US dollars, now also give a high return in local currency trades.
The Central Bank of Nigeria (CBN) has hiked its monetary policy rate by 800 basis points since February, reaching 26.75 per cent in July, to help support the naira.
The naira currency is about the cheapest in the world on a real effective exchange rate or REER measurement, according to Charlie Robertson, Head of Macro Strategy, FIM Partners UK Ltd.
Higher rates have helped to bid up naira assets as Capital inflows into Nigeria surged by 198 percent to $3.38 billion in the first quarter (Q1) of 2024, according to the National Bureau of Statistics (NBS). Foreign Portfolio Investment or FPI rose by 219.67 percent year on year in the period.
Gross dollar reserves of the CBN rose to $36 billion on July 19th, the highest level in more than a year, according to data on its website seen by MoneyCentral.
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