Pakistan is set to be among the most heavily weighted countries in a proposed new JPMorgan index tracking frontier-market local-currency bonds, as the global bank moves closer to launching a benchmark aimed at higher-yielding emerging economies.
According to investors consulted by Reuters, the proposed index will include local-currency bonds from around 20 to 25 frontier economies across Asia, Africa, and other regions, with Pakistan, Egypt, Nigeria, Vietnam, Kenya, Morocco, Kazakhstan, Sri Lanka, and Bangladesh expected to carry the largest weightings.
The new index is designed to capture demand for higher yield and diversification at a time when investor appetite for riskier debt has increased amid a prolonged decline in the US dollar and strong rallies in markets such as Argentina and Ecuador.
JPMorgan Chase declined to comment on the plans, but fund managers said discussions with the bank reached an advanced stage in the second half of last year.
According to investors, the index will likely impose caps on country weightings, with no single country expected to exceed 8 percent, although earlier drafts had suggested a limit of up to 10 percent.
The benchmark is also expected to include only bonds with a minimum size of $250 million equivalent. This requirement could affect eligibility for some countries, including Zambia, which has historically issued smaller local currency bonds but has recently sold a larger issue.
One senior fund manager said the final structure of the index is expected to be shared around June, with a formal launch likely next year. Another investor said an initial announcement could come as early as late March, potentially accelerating the rollout.
Analysts say the move reflects growing interest in frontier market debt. Research by Neuberger Berman estimates that tradable local currency debt in frontier markets has tripled over the past decade to around $1 trillion.
The firm also found that frontier market local currency debt has outperformed JPMorgan’s broader emerging market local currency index by nearly 2.5 percentage points over the past eight years, while also beating emerging market dollar bonds.
According to the World Bank, frontier economies account for about one fifth of the global population but receive only 3.1 percent of global capital flows and contribute less than 5 percent of global GDP. However, their populations are expected to grow by 800 million over the next 25 years, underscoring their rising economic significance.
Analysts said the new index could help deepen local currency bond markets, long advocated by institutions such as the IMF and World Bank to reduce debt vulnerabilities linked to hard currency borrowing.
JPMorgan estimates the new index could offer a yield pick up of more than 400 basis points over its mainstream emerging market bond index, with over 60 percent of constituent bonds expected to yield more than 10 percent.
