Marrakech – Morocco will feature among the most heavily represented countries in a new JPMorgan bond index due to launch before the end of September, according to a note the bank sent to investors and reviewed by Reuters, which first reported the plan on Monday.
The benchmark, named GBI-EM Edge, will track close to $330 billion of sovereign debt issued in local currencies across 26 frontier markets. It arrives almost 20 years after NEXGEM, JPMorgan’s hard-currency frontier index, and extends that coverage to bonds sold in national currencies.
Morocco will sit alongside Egypt, Vietnam, Kazakhstan, Bangladesh, Pakistan, Nigeria, and Sri Lanka among the leading markets in the index. Each country’s weighting is capped at 8% to prevent any single market from dominating the composition. Morocco’s exact share has not yet been disclosed.
Not every bond will qualify. To be eligible, a security must carry at least $250 million in outstanding value and hold a residual maturity of no less than 2.5 years. In Morocco’s case, the index will cover tradeable Treasury securities issued in dirhams, not the sovereign debt raised in euros or dollars.
Africa will hold a central place in the new reference. Countries on the continent will account for close to 45% of the index, while frontier Asia – led by Vietnam, Kazakhstan, Pakistan, and Bangladesh – will make up roughly a third. Those four Asian markets are each expected to reach the 8% ceiling.
The index will carry a nominal yield of about 10.4%, some 440 basis points above JPMorgan’s mainstream emerging-market local-currency benchmark. Back-testing over the past nine years points to annualized returns 1.2 percentage points higher.
That yield reflects the profile of the markets involved. JPMorgan compared several of them to the large emerging economies of the early 2000s, pointing to high nominal returns, improving financial infrastructure, and recurring bouts of volatility.
The launch lands amid rapid growth in emerging-market local-currency debt. Reuters cited estimates that the tradeable volume of this asset class has tripled over a decade to around $1 trillion, of which GBI-EM Edge will track close to a third.
Thomas Christiansen, head of emerging-market fixed income at UBP in London, told Reuters the index would not have been possible 10 years ago, with investors now treating these markets as a way to diversify their portfolios.
The scale of frontier economies helps explain that interest. They are home to about a fifth of the world’s population yet capture only 3.1% of global capital flows and less than 5% of global GDP, according to World Bank data cited by Reuters. Their populations are expected to grow by 800 million over the next 25 years, more than the rest of the world combined.
For Morocco, inclusion first delivers additional international visibility. Fund managers will be able to assess dirham Treasury bonds within a common set of frontier markets. The country already appears in the FTSE Frontier Emerging Markets Government Bond Index, but JPMorgan’s benchmarks carry more weight among emerging-market money managers.
Inclusion also widens the potential investor base. Some funds build their portfolios by replicating such indexes, while others use them to measure performance. Once Morocco carries a weighting, deciding not to hold its debt becomes an explicit choice that can open a gap against the benchmark.
The financial effects will be more gradual. Fresh demand for Moroccan Treasury bonds would lift their prices and pull their yields down, which could improve the terms on which the Treasury finances itself at home. A broader and more diversified base of buyers would also deepen the secondary market and strengthen liquidity.
None of this is guaranteed. The eventual impact will depend on Morocco’s final weighting, the securities selected, and the size of the portfolios that track or benchmark against the index. The 8% cap applies to every country and does not mean Morocco will receive that share.
Inclusion carries one further advantage. By drawing foreign demand toward dirham-denominated debt, the index gives the Treasury another channel to raise financing at home without adding to its obligations in foreign currencies.
