JPMorgan Chase & Co. is considering cutting the weight of the largest bond issuers in its flagship emerging-market index — including China and India — as it seeks to reflect a broader range of developing-nation debt.
The Wall Street bank has been soliciting feedback from clients on amendments to its GBI-EM Global Diversified index, the benchmark for local-currency developing-nation debt that’s tracked by more than $200 billion of funds, documents seen by Bloomberg show.
One of the proposals envisages lowering a cap on individual countries from 10% to 8.5%, a move that could increase the average yield of the benchmark, as nations with higher borrowing costs gain a bigger presence, according to the documents. While a loftier yield implies greater risks, it also means higher potential returns.
The amendments are preliminary proposals, the documents show, and are not guaranteed to be adopted. In a consultation last year, JPMorgan initially floated a methodology change which would have resulted in China’s index share falling to 6%, only to later withdraw the proposal.
A spokesperson for JPMorgan declined to comment when contacted by Bloomberg.
JPMorgan’s index is the main benchmark for developing-nation debt funds, and changes to its composition can affect global investment flows. Chinese bonds were phased into JPMorgan’s indexes in 2020 while Indian debt was added last year.
Possible impact of amendments
If the latest amendments are implemented, the weighting reductions would affect the largest bond sellers in emerging markets, including Indonesia, Mexico and Malaysia, as well as China and India, according to the documents. Brazil, South Africa, Poland and Colombia would be among the biggest beneficiaries, they show.
The change would enhance index diversification, the JPMorgan documents said, citing the re-allocation of index weight to midsize and smaller market economies. In addition, index membership is being assessed for local-currency bonds from Saudi Arabia and Philippines, while Kazakhstan, Egypt, Nigeria and Argentina could be prospects for future inclusion.
JPMorgan is also previewing a new index for local markets from so-called frontier economies, with $344 billion of debt across 521 bonds eligible, according to the documents. The new frontier gauge would cover 21 markets across 20 currencies.
