JPMorgan plans to launch frontier market government bond index
In London, United Kingdom, JPMorgan announced plans to launch by the end of September a local-currency government bond index for frontier markets, GBI-EM Edge. The new benchmark will cover securities from 26 countries with a total volume of nearly $330 billion, Channel NewsAsia reports, citing Reuters and an anonymous source familiar with the final approved plans.
Countries and inclusion criteria
According to the Reuters source, Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria and Sri Lanka will have the largest weights in the index. The calculation is planned to include bonds with an equivalent value of at least $250 million and at least 2.5 years remaining until maturity. Each individual country’s share will be capped at 8%.
African countries will account for nearly 45% of the index. The “frontier Asia” segment, which primarily includes Vietnam, Kazakhstan, Pakistan and Bangladesh, will make up nearly one-third. Zambia will also be included in the index after increasing the volume of its bonds in recent months.
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Yield and the index’s role
According to the source, the average nominal yield of securities in GBI-EM Edge will be nearly 10.4%. This is about 440 basis points higher than JPMorgan’s local index for emerging markets. Back-testing showed that from the end of 2017, the new index’s yield was 1.2 percentage points higher than the main local-currency emerging-market debt index.
JPMorgan had been working on the new index for several years amid investor demand for higher-yielding sovereign debt securities. The bank already has the NEXGEM index for frontier markets in hard currency, which was introduced 15 years ago. Analysts estimate that the volume of tradable local-currency debt of emerging-market countries has tripled over the past decade, to about $1 trillion.
Bond indices can influence emerging-market markets, as international investors often buy securities included in such benchmarks. A similar FTSE Russell index has existed since 2021, but JPMorgan’s indices are more widely used among asset managers working with emerging markets.
