wenty-six frontier markets will enter, before the end of the month, a bond index that J.P. Morgan is launching under the name GBI-EM Edge. The basket will track local-currency government debt worth close to 330 billion dollars, almost twenty years after NEXGEM, the American bank’s hard-currency frontier index. Morocco sits among the most heavily weighted markets, alongside Egypt, Vietnam, Kazakhstan, Bangladesh, Pakistan, Nigeria and Sri Lanka. The per-country ceiling is set at 8%, reached by Vietnam, Kazakhstan, Pakistan and Bangladesh; the kingdom’s own final share is not confirmed. To enter the basket, a bond must be worth at least 250 million dollars and keep two and a half years of remaining maturity.
Africa will account for almost 45% of the index and frontier Asia for roughly a third, for an expected nominal yield around 10.4%, some 440 basis points above the house’s main emerging local-currency benchmark. What is at stake is not the ranking but the machinery: a benchmark is what passive managers replicate, and a market’s entry into a tracked basket calls in buying from funds that would not otherwise have looked at it. The Moroccan Treasury, which borrows in dirhams, will thus see a door open toward the large international allocators, where foreign-currency debt had until now been its main point of access. The weight the bank finally grants it remains to be seen: that figure, not the list, will say what the kingdom really counts for in the new standard.
Photo: Rachidourkia, CC BY-SA 4.0.
Reuters - JPMorgan to launch long-awaited ‘frontier’ local currency debt index
J.P. Morgan - Index Research - composition documents
