Pakistan is expected to be among the most heavily weighted countries in a proposed new JPMorgan index tracking frontier-market local-currency bonds, as the U.S. banking giant moves closer to launching a benchmark targeting higher-yielding emerging economies.
According to investors familiar with the matter, the index would include local-currency bonds from about 20 to 25 frontier economies across Asia, Africa and other regions. Pakistan, Egypt, Nigeria, Vietnam, Kenya, Morocco, Kazakhstan, Sri Lanka and Bangladesh are expected to carry the largest weightings.
The proposed index is designed to capture growing demand for higher yields and diversification as investor appetite for riskier debt has strengthened amid a prolonged decline in the U.S. dollar and strong rallies in markets such as Argentina and Ecuador.
JPMorgan Chase declined to comment. However, fund managers said discussions with the bank reached an advanced stage in the second half of last year.
Investors said the index is expected to impose caps on country weightings, with no single country likely to exceed 8%. Earlier drafts had suggested a limit as high as 10%.
The benchmark is also expected to include only bonds with a minimum size equivalent to $250 million, a requirement that could affect eligibility for some countries, including Zambia, which has historically issued smaller local-currency bonds but recently sold a larger issue.
One senior fund manager said the final structure of the index is expected to be shared around June, with a formal launch likely next year. Another investor said an initial announcement could come as early as late March, potentially accelerating the rollout.
Analysts said the move reflects growing investor interest in frontier market debt.
Research by Neuberger Berman estimates that tradable local-currency debt in frontier markets has tripled over the past decade to about $1 trillion.
The firm found that frontier market local-currency debt has outperformed JPMorgan’s broader emerging market local-currency index by nearly 2.5 percentage points over the past eight years, while also beating emerging market dollar-denominated bonds.
According to the World Bank, frontier economies account for about one-fifth of the global population but receive only 3.1% of global capital flows and contribute less than 5% of global gross domestic product. Their populations are expected to grow by about 800 million over the next 25 years, highlighting their rising economic importance.
Analysts said a new frontier market index could help deepen local-currency bond markets, a long-standing goal of institutions such as the International Monetary Fund and the World Bank aimed at reducing debt vulnerabilities linked to hard-currency borrowing.
JPMorgan estimates the proposed index could offer a yield premium of more than 400 basis points over its mainstream emerging market bond index, with more than 60% of constituent bonds expected to yield above 10%.
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