JPMorgan Launches GBI-EM Edge Index for Frontier Debt
JPMorgan is launching a new benchmark covering nearly $330 billion in frontier market local currency government bonds by the end of September.
JPMorgan will launch the GBI-EM Edge index by the end of September. The benchmark covers nearly $330 billion in local currency government debt. It includes bonds from 26 frontier economies. This launch follows the release of the hard currency NEXGEM index nearly 20 years ago.
The new index targets a segment of the market with high growth potential. Frontier economies hold a fifth of the world's population. They account for only 3.1% of global capital flows. Their population is expected to grow by 800 million over the next 25 years.
Index composition and country weightings
Egypt, Vietnam, Morocco, and Kazakhstan hold the largest weightings. Bangladesh, Pakistan, Nigeria, and Sri Lanka also feature prominently. African countries account for almost 45% of the total index value. Frontier Asia nations make up nearly one third of the composition.
A single country cannot exceed an 8% weighting in the index. Only bonds with a minimum size of $250 million are eligible. These bonds must have at least 2.5 years remaining until maturity. Zambia qualified for inclusion after increasing the size of its bond offerings.
Yield premium and performance history
The nominal yield of the new index is nearly 10.4%. This figure is 440 basis points higher than the mainstream emerging market local currency index. Back-testing data shows annualized returns were 1.2 percentage points higher over the last nine years. The index offers a higher income stream for investors seeking yield.
Market impact and investor demand
Tradeable local currency emerging market debt has tripled over the last decade. The total market size is now around $1 trillion. The new JPMorgan index tracks a specific portion of this total. It provides a new benchmark for performance measurement among money managers.
The World Bank and IMF support the expansion of local currency markets. This approach helps reduce debt crises caused by currency crashes. Angola recently opened its $18.6 billion domestic bond market more widely. GN auto markets/indices: market indices notes that this trend reflects growing investor appetite for high-yielding debt.
