Nigeria is Africa's largest economy, but liquidity issues are hampering the country's local currency-denominated debt, prompting JPMorgan Chase & Co. to remove the country from its local-currency emerging market bond indexes. More than $200 billion tracks those benchmarks.
"Nigeria will not be eligible for re-entry for at least 12 months from the date of exclusion, JPMorgan said. The country has a 1.5 percent weighting in the biggest GBI-EM index, which is tracked by $183.8 billion of funds, according to the bank," reports Bloomberg News.
The news, originally reported Tuesday, did not get pressure the Global X MSCI Nigeria ETF (NYSE: NGE). NGE, the lone Nigeria ETF, participated in a rally that lifted stocks around the world, soaring nearly 3.8 percent. Still, the lone Nigeria ETF is off 5.7 percent year-to-date. NGE is one of just three country-specific ETFs tracking a nation that is a member of the Organization of Petroleum Exporting Countries (OPEC).
JPMorgan's decision to boot Nigeria from its local-currency bond indexes, a move that will be complete next month, does not have widespread ETF impact. The iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSE: EMB), the largest emerging markets bond ETF, tracks a JPMorgan index, but the bonds held by the fund are dollar-denominated.
However, the Market Vectors Emerging Markets Local Currency Bond ETF (NYSE: EMLC) does track the J.P. Morgan GBI-EMG Core Index (GBIEMCOR) and currently features a 3.1 percent allocation to naira-denominated debt, according to issuer data.
EMLC has a 30-day SEC yield of 6.65 percent and is home to $1.2 billion in assets under management.
The yield on Nigerian bonds reflects the risk associated with that debt. For example, the yield on Nigerian 10-year bonds jumped to 16.15 percent on September 7. That is more than quadruple the trailing 12-month dividend yield of 3.7 percent found on NGE.
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