JPMorgan Chase & Co. is evaluating changes to the structure of its widely tracked emerging-market bond benchmark that could reduce the influence of some of the largest sovereign debt issuers, including China and India.
According to documents reviewed by Bloomberg, the Wall Street bank has proposed lowering the maximum weight of individual countries in its GBI-EM Global Diversified index from 10% to 8.5%.
This flagship index is the benchmark for over $200 billion in funds and tracks local-currency sovereign bonds from developing nations.
A potential reduction in the weight of major issuers like China and India could allow smaller or higher-yielding emerging market economies to gain more representation, which may lead to higher overall yields and risk in the benchmark.
While the change is still under consultation and not yet finalized, JPMorgan has been actively seeking client feedback.
The bank has explored similar adjustments in the past.
In a previous consultation last year, a methodology change was considered that would have cut China’s index share to around 6%. That proposal was eventually withdrawn.
Potential winners and losers in a shifted allocation
If implemented, the proposed changes would reduce the index weightings of the largest bond issuers in the emerging market universe.
This includes China, India, Indonesia, Mexico, and Malaysia. Countries like Brazil, South Africa, Poland, and Colombia stand to gain the most from the reallocation, said the Bloomberg report.
By reducing the cap on individual countries, JPMorgan’s goal appears to be greater diversification across its emerging-market benchmark.
A shift in composition could redirect investment flows, particularly from passive funds that track the index closely.
The reallocation could also enhance returns for investors by increasing exposure to nations with higher interest rates, albeit with accompanying higher credit and currency risk.
JPMorgan has declined to comment.
New frontier markets index
In addition to reweighting the GBI-EM index, JPMorgan is also considering expanding its offerings with a new frontier local markets index.
The proposed gauge would span 21 markets and include debt denominated in 20 different currencies.
According to the documents, the frontier index would encompass approximately $344 billion in eligible bonds across 521 securities.
This move appears to be part of JPMorgan’s broader effort to provide more targeted exposure across the diverse and evolving spectrum of developing economies.
As interest in frontier and emerging markets grows amid a global search for yield, such benchmarks serve as critical tools for asset managers.
Chinese and Indian bonds were added to JPMorgan’s indexes in 2020 and 2024, respectively.
Any revision to their weightings would reflect both evolving market dynamics and investor sentiment toward geopolitical, economic, and monetary developments in those countries.
While no final decisions have been made, JPMorgan’s proposed changes could significantly alter the landscape for emerging-market debt investing.
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