GBI-EM Global Diversified index: Why JPMorgan is thinking of cutting India, China share in EM Bond Index – explained

JPMorgan Chase & Co. is evaluating potential adjustments to its primary emerging-market index by reducing the allocation of major bond issuers, including China and India, aiming to encompass a wider spectrum of developing-nation debt.According to documents reviewed by Bloomberg, the American investment bank has been gathering client input regarding potential modifications to its GBI-EM Global Diversified index, the primary indicator for local-currency developing-nation debt, which currently guides investments exceeding $200 billion.The suggested changes include reducing the maximum country allocation from 10% to 8.5%. This adjustment could result in an increased average yield for the benchmark, as countries with higher interest rates would receive larger representation, as outlined in the documents. Whilst elevated yields typically indicate higher risks, they also present opportunities for increased returns.The documents indicate these modifications are initial suggestions and implementation isn’t certain. Previously, during a consultation in the previous year, JPMorgan had suggested a methodology revision that would have decreased China’s index representation to 6%, but subsequently withdrew this recommendation.Under the proposed changes, the weight reductions would impact major bond issuers in emerging markets, including Indonesia, Mexico, Malaysia, China and India, as indicated in the documents. The modifications would primarily benefit Brazil, South Africa, Poland and Colombia.JPMorgan’s new initiative includes introducing a frontier local markets index, encompassing £344 billion worth of debt across 521 bonds, according to the documents. This new frontier measure would include 21 markets spanning 20 currencies.As the primary benchmark for developing-nation debt funds, modifications to JPMorgan’s index composition can significantly influence global investment patterns. The index incorporated Chinese bonds in 2020, followed by Indian debt’s inclusion the previous year.