The ETF invested in Nigeria has been on a tear this month. With the ailing president in absentia, the central bank is mulling a diaspora bond.
By Dimitra DeFotis
The Global X MSCI Nigeria exchange-traded fund (NGE) was one of the few developing-market country funds that moved higher Thursday,June 29 continuing its stunning 16 per cent run in June.
It’s not that things are going particularly well politically, and short interest in the fund rose in June. Nigerian Vice-President Yemi Osinbajo has been running the country with President Muhammadu Buhari in London on medical leave for an unspecified ailment. Quelling rumors of his death after an extended silence, Buhari on Saturday, June 24 released an audio message to mark the end of Ramadan. He called for peace as tribal conflict conjures up memories of Nigeria’s 1967-70 civil war, in which more than one million people died, Newsweek reports.
Nigerian President MuhammaduBuhari addresses his cabinet in Abuja on March 10 after nearly two months in London receiving treatment for an undisclosed ailment.
Back to the small fund: it has assets of $56 million and is now up 9.4% this year with promising signs in May of economic improvement, though capital controls, militant threats to oil production and global weakness in oil prices remain important sources of concern. Nigeria and Libya are exempted from oil production cuts renewed by the Organization of Petroleum Exporting Countries in May, but their production is contributing to the glut of oil.
In the latest Moody’s Investors Service monthly Inside Africa report on sovereign, banking and corporate finance, analysts Aurelian Mali and Lucie Villa explain the scene:
“Nigeria’s economic growth and U.S. dollar earnings are likely to gradually improve in 2017, supported by a recovery in oil production and oil prices. The current rebound in oil production trending towards two million barrels per day (mbpd) since the last quarter of 2016, if sustained, is providing relief to both economic growth and support the U.S. dollar supply in the economy.
The economy is also likely to see further benefits arising from a more timely implementation of the 2017 budget and in particular a higher realisation of capital spending on infrastructure. Although militant activity in the Niger Delta is set to wane following ongoing negotiation and the resumption of payments from the government, it will remain a latent threat to the expected recovery of the economy. The existing scarcity of dollars — worsened by the soft capital controls imposed by the Central Bank of Nigeria — is likely to be persistent and therefore negatively affect important sectors of the economy such as services and manufacturing. We do not expect the current policy mix to significantly change over the short term but a gradual easing of restrictions is possible as foreign currency receipts improve with rising oil production.
Nigeria’s issuer rating is constrained by the weakness of Nigeria’s institutional framework, especially in terms of the rule of law, government effectiveness and control of corruption, which has had a substantial impact economic growth and government fiscal strength. Additionally, Nigeria is exposed to political risks arising from both the conflict with [Islamic militant group] Boko Haram and recurrent attacks on oil infrastructures in the Niger [Delta oil producing region in the country’s south].”
Moody’s assigned a provisional B1 rating on the Nigerian government’s proposed “diaspora bond” in mid-June. The government hopes to issue $300 million in bonds, according to Moody’s.
The SPDR S&P Emerging Middle East & Africa ETF (GAF) rose 1.8% Thursday, but is down 2.7% this month, the iShares MSCI Emerging Markets ETF (EEM) fell 1.3% Thursday and is flat this month, and the iShares MSCI Frontier 100 ETF (FM), down 0.5% today, is off by 0.9% this month.
. Source: Yahoo