J.P. Morgan has spotlighted Nigeria’s Open Market Operation (OMO) bills as a standout investment in frontier markets, citing the nation’s improving foreign exchange (FX) reserves and sweeping reforms at the Nigerian National Petroleum Company (NNPC) as key drivers of investor confidence.
In its latest emerging markets report, the global investment bank reaffirmed its bullish stance on Nigeria’s local debt market, stating that frontier economies remain relatively insulated from global economic slowdowns and continue to offer attractive yields that offset potential currency risks.
“Nigeria local markets remain our top trade recommendation within frontier markets,” the U.S-based bank said in the report.
The bank noted that it recently rolled its maturing Nigeria T-bill trade into a new Nigeria OMO bill, “as the carry trade worked well over the past year and we expected it to continue performing well given potential imminent catalysts.”
“Some of those catalysts have now materialized as the Central Bank of Nigeria (CBN) has now published net FX reserves, while the President has replaced the board and management of the state-owned oil company, the Nigerian National Petroleum Company (NNPC),” the bank said.
The CBN recently disclosed that Nigeria’s net FX reserves surged to $23.11 billion in 2024, a significant jump from $3.99 billion the previous year. This $19 billion boost, alongside an $11.2 billion reduction in encumbered reserves, signals a shift toward greater financial stability.
“This, in our view, is why the dollar/naira was under so much pressure last year and, going forward, should face less pressure as the central bank may ease off on the pace of net reserve accumulation,” the report stated.
J.P. Morgan acknowledged that while the central bank has yet to provide a full breakdown of short- and medium-term foreign liabilities, its willingness to disclose net reserves marks a step toward improved transparency.
The bank also hailed the overhaul of NNPC’s board and management as a pivotal step in the broader oil sector reform agenda.
While it does not foresee an immediate surge in oil production, J.P. Morgan expects these reforms, alongside the Petroleum Industry Act and subsidy removal, to enhance transparency and improve government revenue flows from the oil sector.
“For now, the current account surplus remains large, $17.5 billion last year, yet negative errors also remain large and limit the extent of FX reserve accumulation,” the U.S bank said.
“The next catalyst is the new NNPC FX financing arrangements, which should boost FX liquidity in the near term,” it said.
The NNPC is reportedly in the final stages of agreeing another medium-term FX financing arrangement, collateralized with future oil output.
If these arrangements are finalized in the coming months, the NNPC could have up to US$9.5bn in new financing, which could be used to clear arrears owed for petrol imports and potentially contribute to FX reserve re- building.
“However, while this financing arrangement had appeared imminent a few weeks ago, it is unclear what impact the change in management at the NNPC would have on its timing,” the report stated.
