Government bonds issued by Saudi Arabia and four other Gulf states are outperforming debt from other regions, on expectations their inclusion in JPMorgan’s bond indexes will pull in up to $40 billion in foreign investment.
JPMorgan told investors in September that Saudi Arabia, Qatar, the United Arab Emirates, Bahrain and Kuwait – all members of the Gulf Cooperation Council – would join its emerging-market government bond indexes this year, in phases starting Jan. 31 and running to Sept. 30.
The indexes are performance benchmarks for emerging-market debt; membership can help a country sell bonds and cut borrowing costs. Fund managers estimated index inclusion will generate $30 billion to $40 billion by September.
“We estimate roughly $30 billion to 35 billion would be the total inflow by September 2019,” said Parth Kikani, director of fixed income at Emirates NBD Asset Management. “However, the majority of that (more than half) would be active money that has already come in.”
More than $15 billion in new money has already been invested in GCC sovereign debt before the index entry, Kikani said.
GCC governments have become some of the biggest debt issuers globally over the past few years, tapping international capital markets to plug budget deficits caused by a slump in oil prices.
They will represent around 11.2 percent of JPMorgan’s EMBI Global Diversified and EMBI Global series, JPMorgan said in September.