JPMorgan to launch GBI-EM Edge frontier market local currency bond index by end-September

JPMorgan will launch its GBI-EM Edge frontier market local currency government bond index by end-September, covering 26 countries and tracking nearly US$330 billion of debt. The new benchmark includes Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria and Sri Lanka, with nominal yiel

JPMorgan is set to launch its long-awaited frontier market local currency government bond index by end-September, giving investors a new benchmark for nearly US$330 billion of debt across some of the world's fastest-growing economies. Coming 15 years after its hard-currency NEXGEM frontier index, the Wall Street bank's new GBI-EM Edge benchmark will cover bonds from 26 countries, a source familiar with the now-finalised plans told Reuters on 14 Sep.

Those set to have the biggest weightings in the new index include Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria and Sri Lanka, many of which have enjoyed strong market rallies in recent years following crises. According to the World Bank, frontier economies are home to a fifth of the world's population but account for just 3.1 per cent of global capital flows and less than 5 per cent of global GDP. Their populations, however, are expected to increase by 800 million over the next 25 years — more than the rest of the world combined.

The source, who provided the details on condition of anonymity, said only bonds of US$250 million equivalent or above would be included and must have at least 2.5 years to maturity. The maximum weighting a country can have will be capped at 8 per cent. African countries will account for almost 45 per cent of the index, while Frontier Asia — mainly Vietnam, Kazakhstan, Pakistan and Bangladesh — will make up nearly a third. The index will also have nominal yields averaging almost 10.4 per cent, roughly 440 basis points more than the bank's EM local currency index.

Economists see the index helping expand local currency markets, something long championed by the World Bank and IMF as a way to reduce debt crises caused when currency crashes leave governments unable to pay dollar debt. Earlier this week, the finance minister of Angola, a country in the new index, said it was one of the reasons it was opening up its US$18.6 billion domestic bond market more widely. FTSE Russell has had an equivalent index since 2021, but JPMorgan indexes are more prominent among emerging market money managers, who also use them to measure their own performance.

Analysts estimate that tradable local-currency emerging market debt has trebled over the last decade to around US$1 trillion. The new GBI-EM Edge will track almost US$330 billion of that, the source said. Back-testing showed its returns have been 1.2 percentage points higher than the mainstream EM local currency index since the end of 2017. Some investors had feared the US$250 million minimum requirement would have seen the likes of Zambia excluded, but the country's efforts to increase the size of its bonds in recent months means it has made the cut.