Nigeria and other emerging markets are set for a major rally if the impact of the European Central Bank’s Quantitative Easing beginning on Monday mirrors that of the previous US Federal Reserve stimulus programme.
According to wire reports, the euro zone’s central bank has announced that it will start printing money to buy 60 billion euros worth of bonds monthly, until September 2016 or until inflation is pushed back toward a target of close to 2 percent.
Euro zone financial markets already rallied yesterday after European Central Bank chief Mario Draghi pledged to buy government bonds beyond 2016 if necessary to achieve the goal of reflating the economy.
Nigeria and other emerging markets are also expected to rally and benefit from the Eurozone’s QE programme, similar to the experience of US stimulus.
Analysts estimate private capital flows to emerging markets amounted to about $4 trillion between 2009 and 2013.
In 2013, sub-Saharan African countries were able to raise more than $5 billion with countries like Rwanda, Ghana, Gabon and Nigeria issuing 10-year eurobonds at much lower yields than domestic bond yields.
For instance, Nigeria issued a $500 million eurobond at 6.63 percent yield compared to its domestic bond yields ranging between 10 and 16 percent at the time.
Analysts at FBN Capital also noted that the American QE programme (and the inclusion of Nigerian bonds in the JP Morgan and Barclays Bank bond indices) in 2012 led to increased attractiveness of Nigerian high yielding securities, resulting in capital inflows into the economy.
It is, therefore, expected that the ECB move would “oil the markets and boost appetite for risk”, explained Bismarck Rewane, CEO of Financial Derivatives, noting in a recent presentation anticipating the Eurozone programme.
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