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JP Morgan to add Philippines and Saudi Arabia to key EM bond index over 10 months

By · Published by Everything Blog

In short

The inclusion, originally outlined in April, will absorb nine Philippine peso-denominated government bonds valued at $50 billion and eight Saudi riyal-denominated sovereign sukuk totaling $79 billion. These instruments will be phased into the GBI-EM index series over a 10-month transition window. Alongside these additions, a concurrent reduction in the index's maximum country cap will dilute the presence of several established emerging market giants.

Key points

  • Saudi Arabia is projected to achieve a 2.71% weighting in the index once the transition p…: Saudi Arabia is projected to achieve a 2.71% weighting in the index once the transition period concludes.
  • The Philippines is expected to settle at a 1.64% weight upon the completion of the 10-mon…: The Philippines is expected to settle at a 1.64% weight upon the completion of the 10-month rollout.
  • Index allocations for China, India, Mexico, Malaysia, and Indonesia will be trimmed under…: Index allocations for China, India, Mexico, Malaysia, and Indonesia will be trimmed under the revised country caps.

Sources checked by our analysis pipeline: 1

The inclusion, which was first sketched out in April, will bring Saudi riyal-denominated sovereign sukuk and Philippine peso-denominated government bonds into the US investment bank's widely tracked GBI-EM index series

Their weights will be introduced gradually, with Saudi Arabia's weight expected to reach 2.71% once fully phased in, slightly higher than originally flagged, and the Philippines' weight reaching 1.64%, marginally lower than indicated

The index will add nine Philippine bonds with a total notional value of $50 billion plus eight Saudi sukuk instruments worth $79 billion

JP Morgan's update is part of a broader index adjustment, which will lower the "Country Cap" - the maximum weight, or share, any single country can hold in the "diversified" index - to 9% from 10%

As a result, major markets including China, India, Mexico, Malaysia, and Indonesia will have their weight reduced to the new limit

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