Gulf inclusion in JP Morgan EM bond index to attract $60b

SAUDI ARABIA AND THE UAE WILL HAVE THE HIGHEST WEIGHTAGE ON THE BENCHMARK

JP Morgan said yesterday it will add Saudi Arabia, UAE, Bahrain, Kuwait and Qatar sovereign bonds to its emerging market index from January 31 next year, a decision that can potentially bring up to $60 billion (Dh220 billion) of active and passive inflows, according to analysts.

The impact was felt immediately on the GCC bond market, whose spreads tightened by 10-15 basis points.

The new countries, which will be included in EMBI Global Diversified (EMBIGD), EMBI Global as well as the Euro-EMBIG series, will represent around 11.2 per cent weightage on the index, with Saudi Arabia taking the maximum of 3.1 per cent, while the UAE will get 2.6 per cent weightage.

Qatar, Bahrain and Kuwait will get 2.6 per cent, 2.1 per cent and 0.8 per cent weightage, respectively, according to a document put out by JP Morgan to its investors. Oman was previously included in the index.

‘Positive move’

“It’s a positive move for the region. Almost $40 billion of passive inflows should come into the region, which should help prices and access,” Abdul Kadir Hussain, Head of Fixed Income Asset Management at Arqaam Capital said.

The eligible new bonds will be included into the index in a phased manner ending on September 30, 2019, with a proportion of the total exposure included at each monthend, JP Morgan said in that document.

Investment

The inclusion will likely get around $20-$60 billion of active and passive flows, according to Anita Yadav, Head of Fixed Income Research, Senior Director, Wholesale Banking at Emirates NBD.

“This (inclusion) was expected and this doesn’t come as a surprise. It’s is pleasing to see that not only conventional bonds but also Sukuk from the region will be included in the index provided they are rated. Inclusion in the index will increase the demand for GCC bonds and Sukuk and this bid will assist in spread tightening in the near future.” Yadav told Gulf News.

“Most large international players are already exposed to GCC, the inclusion in the index will get the smaller asset managers that follow the index,” Yadav said.

Additionally, this inclusion news would also boost liquidity in Saudi Arabia, whose equity index is expected to be added to the MSCI emerging market benchmark in June 2019. The equity index inclusion is expected to result in inflows of $30-$45 billion.