Sri Lanka has been assigned a 7.5% weighting in J.P. Morgan’s new frontier-market local-currency government bond index, placing the country among the largest components of the benchmark.
The Government Bond Index–Emerging Markets Edge, or GBI-EM Edge, is expected to be launched by the end of September and will track close to US$330 billion in government bonds across 26 frontier markets.
Sri Lanka’s 7.5% share is just below the maximum country weighting of 8%.
Vietnam, Egypt, Morocco, Pakistan, Bangladesh and Kazakhstan have each been assigned the maximum 8% weighting, while Nigeria accounts for around 7.4%.
In simple terms, the index acts as a guide for international investors looking at government bonds issued in the domestic currencies of smaller emerging or “frontier” economies.
Sri Lanka’s inclusion means rupee-denominated government bonds will form a relatively large part of that benchmark.
However, a 7.5% weighting does not mean that 7.5% of a fixed amount of foreign investment will automatically flow into Sri Lanka. Rather, investors and fund managers who follow or compare their portfolios against the index may use that weighting as a reference when deciding how much exposure to hold.
The index will include eligible local-currency government bonds with at least US$250 million equivalent outstanding and a minimum remaining maturity of two-and-a-half years.
J.P. Morgan has capped the weighting of any single country at 8% to prevent larger markets from dominating the index.
The launch could increase the visibility of Sri Lanka’s domestic government securities among international investors and make it easier for global fund managers to compare Sri Lankan bonds with those of other frontier markets. (Newswire)
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