NIGERIA REMOVED FROM JPMORGAN’S EMERGING MARKET BOND INDEX

So, Nigeria was removed, as the headline implies. Read the article in the following link for more details:

http://www.bloomberg.com/news/articles/2015-09-08/jpmorgan-to-remove-nigeria-from-emerging-market-bond-indexes

I stumbled upon a comprehensive article by a seasoned Nigerian investment banker and CFA. His opinions on how this will impact the markets are very well articulated here:

https://www.linkedin.com/pulse/impact-nigerias-exclusion-from-jp-morgans-gbi-em-femi-ademola-cfa?trk=hp-feed-article-title-comment

My personal opinion is that one must not forget that there are several vested interests involved here. Profit taking and capital preservation is the short to medium term trading objectives of offshore financial speculators versus the longer term objectives of the CBN, DMO and FMF which is the stabilisation, regulation and growth of the Nigerian economy (both the finncial markets and more importantly, the real sector). In this particular scenario, both objectives conflict, which is why I like the fact that the Nigerian government is more committed to currency moves that will grow our real sector rather than currency moves that will make our financial markets more profitable for foreign investors, especially when those investors repatriate their profits from those financial markets back to their offshore locations without ploughing back those profits into the real sectors of the economy that produced them. Once crude oil prices stabilise, Nigeria’s favorable macroeconomic story will make us an investors haven. Our stocks will then be so cheap that they will be irresistible to foreign investors, especially if the US markets implode, which is inevitable given the reckless QE and debt that US has been racking up for years.That being said, our CBN needs to be more tactically in their efforts to artifically suppress the naira. Demand still outweighs supply and all the CBN has effectively done with their policies/bans is create 3 exchange rates. 197 official, 216 avg black mkt/BDC rate for physical dollars and then 235 for electronic transfer/inflow domiciliary accounts. I am a financial markets trader, but I am also a patriotic Nigerian, and in this case, I prefer the exclusion. PS: The top banks are notorious for publicly bashing a particular asset so it will sell off and then they can buy it at bargain prices. Imagine Goldman Sachs issuing a sell bias for Gold in July, August, only to be covertly buying physical bullion cheaper as Gold ETFs sold lower. I won’t be surprised if JPM’s emerging markets prop desk is picking up bluechip Nigerian stocks in this bloodbath dump.

In closing, I leave you with an article that that reiterates why emerging markets and even “third world” economies, I daresay, are the future of value investing globally.

http://www.bloomberg.com/professional/blog/emerging-markets-are-still-the-future/?bbgsum=DG-WS-CORE-SL-LI

Yours in the quest for significance, beyond success.

Olufukeji Adegbeye CWM

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