JPMorgan Eyes Saudi Bonds for Inclusion in Emerging Markets Index
JPMorgan is reportedly contemplating the addition of Saudi Arabian local-currency bonds to its benchmark index for emerging markets. JPMorgan is a prominent Wall Street bank. This move could potentially facilitate the Kingdom’s efforts to attract more foreign portfolio investment. It also couldfund its extensive diversification projects aimed at reducing reliance on oil.
Saudi Arabia’s Economic Diversification Drive
Under the leadership of Crown Prince Mohammed bin Salman, Saudi Arabia has embarked on an ambitious economic diversification drive known as Vision 2030. This initiative, funded partly by oil revenue, requires significant foreign investment and borrowing to finance wide-ranging projects. Such projects like the development of new cities, tourism resorts, and electric vehicles. The potential inclusion of the Kingdom’s local-currency bonds in JPMorgan’s index could enhance their liquidity and draw in more passive funds.
Saudi Bonds and the JPMorgan Index
The influential JPMorgan Government Bond Index-Emerging Markets (GBI-EM) is tracked by approximately $236 billion of funds. The Saudi Arabian regulators are reportedly working diligently to ensure the bonds’ eligibility for inclusion in the index. Other countries represented in the GBI-EM indexes include China, Brazil, Malaysia, Mexico, Poland, South Africa, and Turkey. Recently, JPMorgan announced the addition of India to the index, effective from June next year.
Potential Boost to Saudi Government Securities
The potential inclusion of Saudi Arabian bonds in the index could significantly boost the liquidity of the Kingdom’s government securities. This could attract more passive funds, providing boost for the Kingdom as it embarks on its significant diversification drive. The Wall Street bank has already created a Saudi-only local debt benchmark index. This step will facilitate investors in tracking the performance of the Kingdom’s securities. This is a preliminary step towards joining the emerging markets indexes.
Final Thoughts
The potential inclusion of Saudi bonds in the JPMorgan index is a significant development for the Kingdom as it seeks to attract more foreign investment to fund its ambitious diversification drive. However, it remains to be seen how this move will impact the Kingdom’s fiscal outlook and its efforts to reduce reliance on oil revenue.
If successful, this move could set a precedent for other emerging markets looking to attract foreign investment and diversify their economies. It underscores the increasingly important role of financial institutions like JPMorgan in shaping global investment trends and facilitating economic development in emerging markets.
