JPMorgan is finalising plans for a new index to track frontier market local currency bonds, investors consulted on the details told Reuters, as the bank looks to satisfy a growing appetite for riskier and more diversified high-yield debt.
The move, which comes 15 years after the Wall Street bank launched its hard-currency Next Generation Markets Index (NEXGEM) frontier index, coincides with the year-long slump in the dollar and some extraordinary recent rallies in markets like Argentina, Ecuador and Uganda.
JPMorgan declined to comment on the plans.
Six leading money managers who spoke to Reuters on condition of anonymity said the bank’s engagements with them reached an advanced stage in the second half of last year.
The proposed index includes 20 to 25 countries, with Egypt, Vietnam, Kenya, Morocco, Kazakhstan, Pakistan, Nigeria, Sri Lanka and Bangladesh having the largest “weightings”, three of the managers said.
According to one source, there would be a limit that means no country has a weighting of more than 8 per cent. A second source said an earlier consultation document had a proposed 10pc limit.
It is also set to only include bonds of at least $250 million equivalent, although that has raised issues around Zambia, which many would like to see included but has traditionally only sold smaller individual bonds.
“We expect they (JPMorgan) will give us a formal structure for the index around June with the opportunity to make some final comments,” said one senior fund manager.
“They are then likely to formally launch the index next year, we think.” Another senior fund manager said the initial announcement might be as early as the end of March, which could also bring the formal launch date forward.
Russell has already had an equivalent index since 2021. JPMorgan’s versions, however, are more prominent among emerging market money managers, who effectively use them to compile their funds and measure their performance.
Analysis by Neuberger Berman estimates tradable local-currency debt has trebled over the last decade to around $1 trillion.
