TheCable

The market capitalisation of the Nigerian Stock Exchange (NSE) has maintained a downward slide in the past four days, having fallen significantly by N1.17 trillion since the beginning of the year.

According to data gathered by TheCable, the market capitalisation has depreciated heavily by 10.38 per cent from N11.237 trillion on Monday, to N10.071 trillion as at the close of the market on Thursday.

Also, the NSE All-share index dropped by 3,522.75 points or 10.38 per cent to 30,420.54 on Thursday, from 33,943.29 points on Monday.

A separate report by Reuters on Thursday showed that investors are now more averse to investing in Nigeria, Gabon, Algeria, as well as some other oil-producing countries in Africa.

According to the report, investors are turning more cautious about dollar bonds from Nigeria and other markets known as “frontier” markets, due to sliding oil prices, low trading volumes and expectations of smaller returns.

Frontier markets are fast-growing but less-developed and higher-risk sub-set of emerging economies.

Investors are focusing on Asia, a region that is heavy in oil importation with frontier countries such as Sri Lanka.

Debt issuance by frontier countries is a small proportion of the total for emerging markets, which are dominated by bigger names such as Brazil or Russia. But their governments have made the most of investors’ hunt for better returns while interest rates in developed economies remain ultra low.

According to Reuters data, frontier countries sold $19.7 billion in hard currency debt last year – an almost-50-per-cent rise from 2013 and nearly three times the 2012 level.

Yet, Kevin Daly, portfolio manager at Aberdeen Asset Management’s emerging debt team, said many, especially oil exporters such as Nigeria and Ecuador, are likely to be hit hard this year by the dramatic drop in crude prices,

“The outlook is tenuous for some countries, given the sensitivity for oil,” he said.

“Investors will be a little bit more circumspect and demand a higher risk premium when it comes to these kinds of commodities-sensitive countries in the current backdrop.”

Anyone who bought bonds from the around 30 countries in the benchmark JPMorgan Next Generation Emerging Markets index (NEXGEM) would have made a return of just over 10 per cent last year. That compares with 7 per cent for mainstream emerging sovereigns or 3.6 per cent for emerging market corporate debt.

Overall, weak economies and falling oil prices bring more risk, making it costlier for governments to raise foreign capital. The cost of servicing dollar debt is also likely to rise once the US Federal Reserve raises interest rates, a move widely expected to come at some point this year.

JPMorgan expects issuance across NEXGEM countries to amount to $15.5 billion this year. Investors say the sector’s small size and high risk has in fact shielded frontier debt, as it tends to attract buy-and-hold funds with a high risk tolerance.