J.P. Morgan has placed Morocco among the core countries set to receive some of the highest weightings in its new GBI-EM Edge index, which tracks local-currency sovereign bonds across 26 frontier market economies.
The international financial services firm will launch by end of September its “Government Bond–Emerging Market Index” (GBI-EM) covering almost $ 330 billion of debt across 26 frontier and smaller emerging markets.
The index is set to attract foreign investors interested in buying
bonds included in major benchmarks, which can drive foreign capital inflows into developing countries.
According to press reports, African countries will account for almost 45% of the index, while “Frontier Asia” will carry the maximum 8% weightings, will make up nearly a third. The GBI-EM Edge Index offers investors higher yields of nearly 10.4%—about 440 basis points higher than mainstream emerging market local-currency indices.
The index reduces dollar-debt crises. By encouraging local-currency bond markets, it helps governments avoid the severe debt crises triggered when currency crashes make it hard to repay dollar-denominated loans.
The World Bank says frontier economies are home to a fifth of the world’s population but account for just 3.1% of global capital flows and less than 5% of global GDP.
Their populations, however, are expected to increase by 800 million over the next 25 years, more than the rest of the world combined, meaning they will play an increasingly important role in global economic growth.
Economists also see the new debt indexes helping expand local-currency markets, something long-championed by the World Bank and IMF as a way to reduce debt crises caused when currency crashes leave governments unable to pay dollar debt.
