Nigeria | Monthly fixed income report - January 2023 : In search of value

African market

The African LCY sovereign bond market has traded cautiously since the start of the new year amid fragile macroeconomic conditions and reduced global liquidity. To wit, the Bloomberg African Bond Index (AFMI) pared 3.6% in January 2023, lagging the emerging market index (+3.6%). Furthermore, growing fiscal concerns and the contagion risk from countries like Ghana resulted in widened credit spreads. In our view, the current yield level in the African credit market appears relatively attractive in countries with relative fiscal prudence and improving fundamentals. Nevertheless, broad valuations remain a mixed bag, requiring investors to be cautious when assessing value through a traditional lens, given that sovereign credit stress (see figure 3) touched an unprecedented level in 2022.


African currencies could ride the wave of a weaker dollar outlook

African currencies were badly beaten last year, as 18 of the 23 currencies tracked by Bloomberg recorded losses. While the Idiosyncratic risks in the African region contributed to the currency weakness, the aggressive tightening in 2022, which strengthened the dollar to a 2-decade high, was the major driver. The strength of the dollar prompted capital flight and added more stress on African dollar- dominated debt obligations in 2022. In our view, the slower rate hikes by the US Fed will likely lead to a gradual dollar correction in 2023, providing some comfort for African currencies and potential pass-through to local and sovereign credits.

Aside from the weaker dollar expectation, the improving growth narrative strengthens the investment case for African credits. For context, the IMF recently revised the 2023 SSA growth forecast from 3.7% to 3.8% on the back of economic re-opening in China and the resilient Indian economy, given that both Asian countries are the main trading partners of the African region.


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CardinalStone is a full service investment banking firm with a vision to build a world class investment banking firm of African origin; operating out of Lagos, Nigeria. The firm was incorporated in April 2008 and began operations in June 2008. CardinalStone is duly registered with the Securities & Exchange Commission in Nigeria to carry on business as an Issuing House, Fund Manager and Broker/Dealer The Firm's activities are carried out across five business units: Asset Management, Investment Banking, Private Equity, Securities Trading and the Business Support Group.
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