JPMorgan to launch frontier bond index covering 26 nations

JPMorgan ↗ 0.76% is set to launch its "GBI-EM Edge" frontier market local currency government bond index by the end of September, creating a new benchmark for nearly $330 billion of debt across 26 of the world's fastest-growing economies, according to a Reuters exclusive report published Monday.reuters

The index, finalized after two years of investor consultations, comes 15 years after JPMorgan's hard-currency NEXGEM frontier index and will give emerging market fund managers a tool to track and measure performance across countries from Albania to Zambia.channelnewsasia+1

What the Index Covers

Countries with the largest weightings in the new benchmark include Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria, and Sri Lanka — many of which have seen strong bond rallies in recent years following economic crises. Individual country weightings will be capped at 8%.bizenglish.adaderana+1

African nations will account for almost 45% of the index, while "Frontier Asia" — led by Vietnam, Kazakhstan, Pakistan, and Bangladesh — will make up nearly a third. Only bonds equivalent to $250 million or above with at least 2.5 years to maturity will qualify for inclusion.reuters+1

The index carries nominal yields averaging almost 10.4%, roughly 440 basis points above JPMorgan's mainstream emerging market local currency index. Back-testing showed its returns have been 1.2 percentage points higher than that mainstream index since the end of 2017.channelnewsasia+1

Why It Matters

Frontier economies are home to a fifth of the world's population but account for just 3.1% of global capital flows and less than 5% of global GDP, according to World Bank data cited in the report. Their populations are expected to grow by 800 million over the next 25 years — more than the rest of the world combined.reuters+1

Bond indexes carry weight in developing economies because international investors often concentrate their holdings in indexed bonds. Economists see the new benchmark as a way to expand local currency debt markets, a strategy long championed by the World Bank and IMF to reduce crises triggered when currency depreciations make dollar-denominated debt unserviceable.reuters

Competitive Landscape

FTSE Russell has operated an equivalent index since 2021, but JPMorgan's indexes are more widely used among emerging market money managers. Analysts estimate that tradable local-currency emerging market debt has trebled over the past decade to around $1 trillion, of which the GBI-EM Edge will track roughly $330 billion.channelnewsasia+1

Earlier this week, Angola's finance minister said the forthcoming index was one reason the country was opening up its $18.6 billion domestic bond market more broadly to international investors.reuters