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

JPMorgan is set to unveil its long-awaited frontier market local currency government bond index by end-September, according to Reuters. This new benchmark will encompass nearly $330 billion of debt from 26 countries, representing some of the world's fastest-growing economies. Notable countries with significant weightings include Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria, and Sri Lanka, each experiencing robust market rallies after previous crises.

Frontier economies, which account for a fifth of the global population, contribute only 3.1% of global capital flows and less than 5% of global GDP. Economists anticipate their populations will increase by 800 million over the next 25 years, underscoring their growing importance in global economic growth.

JPMorgan's GBI-EM Edge index aims to address the increasing demand for high-yielding debt, outperforming other markets. It will only include bonds worth $250 million or more with at least 2.5 years left to maturity, while no single country can hold more than 8% of the index's weight.

African nations will constitute nearly 45% of the index, while Frontier Asia, comprised of Vietnam, Kazakhstan, Pakistan, and Bangladesh, will account for nearly a third. Thomas Christiansen, head of EM fixed income at UBP, noted that the index's launch reflects the growing interest in frontier market investing, which can diversify portfolios and impact the fortunes of developing economies.

The index, similar to FTSE Russell's index launched in 2021, is primarily used by emerging market money managers to measure performance. Tradeable local-currency emerging market debt has tripled over the past decade, reaching around $1 trillion, with the new GBI-EM Edge tracking almost $330 billion of this total. Back-testing indicates its returns would have been 1.2 percentage points higher on an annualized basis over the last nine years.