Quick Summary
- J.P. Morgan urges investors to exit Nigerian OMO bills and T-bills.
- Falling oil prices below $60 pose a major risk to Nigeria’s current account.
- Trump’s proposed global tariffs add to investor uncertainty.
- CBN intervenes to stabilize naira with over $1 billion in FX sales.
- Local debt market faces rising yields and weak investor appetite.
- Despite near-term risks, J.P. Morgan remains cautiously optimistic about Nigeria’s reform path.
J.P. Morgan Urges Caution on Nigerian Investments Amid Global Risks
U.S. investment bank J.P. Morgan has warned investors to reduce their exposure to Nigerian assets. The bank advised exiting long positions in Nigerian Open Market Operation (OMO) bills due to growing global risks.
In a research note dated April 9, 2025, and titled “Frontier Local Markets Strategy: Reducing risk further,” J.P. Morgan pointed to falling oil prices and rising trade tensions as key concerns.
Why J.P. Morgan Changed Its Stance
The bank had previously supported Nigeria’s carry trade, which offered high yields and relative currency stability. However, it now says the outlook has changed.
Former U.S. President Donald Trump’s return to the political scene and his push for new global tariffs are adding uncertainty to global markets. As a result, J.P. Morgan no longer sees Nigerian T-bills as an attractive investment—especially with Brent crude prices falling toward $60 per barrel.
Oil Below $60 Could Hurt Nigeria
J.P. Morgan warned that oil prices below $60 per barrel could push Nigeria’s current account back into deficit. This would weaken the naira and increase demand for dollar-based assets.
The report notes that if oil prices stay low, the naira could depreciate beyond ₦1,700/$1. For now, the exchange rate is around ₦1,500/$1, but it remains heavily dependent on foreign inflows.
“While Nigeria may avoid a recession,” the report said, “a drop in oil prices below its $60 breakeven could push the current account into deficit.”
This shift led the bank to end one of its “highest conviction” trades in frontier markets.
Central Bank Responds to Market Pressure
J.P. Morgan acknowledged the Central Bank of Nigeria’s efforts to stabilize the currency. The naira has depreciated by about 3.6% recently, which the bank described as relatively modest.
To defend the naira, the CBN sold about $550 million into the market in March. This is part of a broader strategy to meet rising demand amid falling supply.
However, the bank warned that these efforts might not be sustainable. It estimated potential portfolio outflows of up to $10 billion if global pressures continue.
Local Markets Show Signs of Strain
J.P. Morgan also flagged growing stress in Nigeria’s domestic fixed-income market. Liquidity for OMO bills and T-bills has weakened. Yields have risen by as much as 300 basis points in recent weeks.
This suggests that investors are becoming more cautious, likely due to inflation fears, falling oil prices, and declining foreign interest.
In response, the central bank has stepped in—either by injecting liquidity or participating in auctions—to maintain stability in the local debt market.
What This Means for Nigeria
Nigeria is walking a tightrope in 2025. Last year, reforms like fuel subsidy removal and FX rate unification attracted positive attention. But now, falling oil prices and global uncertainty are threatening that progress.
The government had hoped for more foreign exchange through oil exports and support from development partners. But with no clear alternative revenue streams, pressure on the economy may intensify.
A Cautious but Hopeful Outlook
Despite the current risks, J.P. Morgan remains cautiously optimistic about Nigeria’s medium-term prospects. It expects the government to continue reforms, allowing the exchange rate to stabilize and reducing reliance on subsidies.
It also sees potential in higher oil revenues through the Nigerian National Petroleum Company Limited (NNPC), now operating as a commercial entity. But much depends on global oil prices and disciplined economic management.
In conclusion, the bank said Nigeria’s ability to handle global shocks and stay committed to reforms will be key to its economic resilience.
