Nigeria, two others have highest weights at bond market -IMF - Punch Newspapers
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“Cross-border spillovers are also affecting frontier markets. Frontier debt issuers have benefited from index inclusion and have become an important part of the EM debt asset class. Their share of international debt outstanding increased dramatically over the past decade; they now account for almost 20 per cent of the widely used the EMBIG-Diversified index, making them a large beneficiary of benchmark-driven flows,” the report added.
It was further stated that high foreign participation in the local bond market could lead to substantial volatility in the frontier markets.“Foreign participation in the local bond markets is also broadly comparable across frontier and emerging markets. High foreign investor participation can induce significant volatility in frontier markets because they often lack financial depth and have a relatively shallow domestic investor base.
“Moreover, potential for contagion is now higher: given their sizable contribution to the overall performance of EM external sovereign debt, episodes of distress in frontier markets could lead to redemptions from BDI funds, resulting in outflows even from countries with strong fundamentals,” the report stated. headtopics.com
Despite having high weight in the emerging bond market index, Nigeria and other frontier markets were said to have shallow investor base and market debt, especially when compared to advanced economies.“Frontier markets have a significantly shallower investor base and market depth compared to emerging and advanced economies,” it stated.
Nigeria was said to have a financial market depth and financial institution depth of less than 0.2 per cent. Read more: The Punch Newspapers »
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