JPMORGAN Chase has dropped a proposal to change the way it calculates its flagship emerging-market bond index that would have reduced China’s share by almost half.
The bank is seeking feedback from clients on potential amendments to its GBI-EM index, the local-currency developing nation debt benchmark tracked by hundreds of billions of US dollars. Under one radical option initially floated in its annual consultation process, China’s share in the gauge would have dropped to 6 per cent from 10 per cent.
JPMorgan has since removed the proposal that had an impact on China’s weighting, with the consultation focusing on the case for including the Philippines and Saudi Arabia, according to documents seen by Bloomberg. The earlier presentation explored changes that would limit the “skew from disproportionately large markets” in the index.
A JPMorgan spokesperson declined to comment.
JPMorgan’s index was tracked by US$236 billion in assets as of last year and it’s the main benchmark for developing-nation debt funds. Changes to its composition can affect global investment flows, as seen in India’s recent addition to the index that has sparked a rush to the country’s debt and further tilted the benchmark towards Asia.
Chinese bonds were only phased into JPMorgan’s indexes in 2020. Since then, the notes have bucked a global rout and yields are now much lower than those of most emerging-market debt.
JPMorgan is asking investors whether Saudi Arabia and the Philippines should be placed on “Index Watch Positive,” a precursor for inclusion, the documents show. Bloomberg News reported last year that Saudi Arabia had been put under review for inclusion, and the Philippines Finance Secretary said earlier this month the government is in talks with the bank. BLOOMBERG
