Nigerian investors have changed their investment portfolio to Kenya bond which has a lower yield. Consequently, yields on Kenya 10-year Eurobond which as at June were 128 basis points higher than local debt are now 55 basis points lower, making it an investment haven for Nigerian investors. Ayodeji Ebo, head, investment and research, Afrinvest West Africa Limited, said in an emailed response to BusinessDay that every rational investor weighs the inherent risk and return in any potential investment or investment destination before taking investment decision.
According to him, the attraction to Kenya bonds is obviously traceable to the exchange rate and political stability obtainable in the country relative to Nigeria. In addition, Nigeria’s weak macroeconomic structure, exacerbated by the sharp decline in crude oil prices further increases the country risk premium investors may demand to invest in Nigeria. He said investors will prefer to take investment position in Kenyan bonds with lower yields but with reduced risks relative to Nigeria with higher yields and risks. “As a result, we may experience reduced foreign participation in the Nigerian bonds market, however dependent on the size of Kenya’s bonds market.
On the other hand, the kick-off of Q.E. in the Euro region may cushion the effect of the reduced inflow to Nigeria as inflows are expected to increase to emerging and frontier markets in the medium to long term. Overall, the impact may be mild on Nigerian bonds as yields are expected to remain at current levels (15.5%-16.0%) in view of the evident inherent macroeconomic risks which may extend beyond the 2015 election”. The East African nation’s local currency securities have returned 0.4 percent in dollar terms this year, compared with an 8.3 percent loss on naira debt, Bloomberg indexes show. The World Bank raised its growth forecast for Kenya on March 5, saying oil prices that have tumbled 48 percent since June would boost the economy of the nation, a net importer of crude. By contrast, Nigeria is set to slow, the International Monetary Fund said the same day.
The continent’s biggest oil producer is struggling with falling export revenue and a loss of investor confidence after it postponed elections amid the insurgency by the Islamist group, Boko Haram, in the country’s North East. “Some investors think it makes more sense to be overweight Kenya versus Nigeria,” Mahan Namin, a money manager at Insparo Asset Management Limited., which sold its Nigerian sovereign bonds last year and has bought more Kenyan debt in 2015, said by phone from London on March 10. “The divergence with Nigeria is a case of Kenya’s revenue base being more diversified and oil prices being lower.”
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