JPMorgan to launch long-awaited 'frontier' local currency debt index

JPMorgan is preparing to unveil its long-awaited frontier market local-currency government bond index by the end of September. This new benchmark seeks to provide investors with a reference point for nearly $330 billion of debt across some of the world's fastest-growing economies. The Wall Street bank's index, named GBI-EM Edge, will encompass bonds from 26 countries, with significant weightings given to Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria, and Sri Lanka.

These nations have recently experienced robust market growth following crises. Frontier economies, home to a fifth of the world's population, contribute only 3.1% of global capital flows and less than 5% of global GDP. As these populations are projected to grow by 800 million over the next 25 years, the new index is expected to play a crucial role in global economic expansion.

Economists view the index as a means to boost local-currency markets, a goal long advocated by the World Bank and IMF to mitigate debt crises stemming from currency crashes that leave governments unable to pay dollar-denominated debts. JPMorgan's new index follows years of development in response to the increasing demand for high-yielding debt, which has outperformed other markets.

The index will only include bonds worth $250 million or more and have at least 2.5 years remaining until maturity, with no individual country's weighting exceeding 8%. African countries will comprise nearly 45% of the index, while Frontier Asia, including Vietnam, Kazakhstan, Pakistan, and Bangladesh, will account for nearly a third.

Analysts estimate that tradeable local-currency emerging market debt has tripled in the last decade to around $1 trillion, with the GBI-EM Edge tracking nearly $330 billion of this total.