Saudi Bonds to Join JPMorgan Index in $119 Billion Gulf Addition

(Bloomberg) -- Saudi Arabia and four other Gulf nations will join JPMorgan Chase & Co.’s emerging-market bond indexes this month, potentially paving the way for billions of dollars in inflows into the securities.

The debt from the world’s biggest oil-exporting nation along with Qatar, the United Arab Emirates, Bahrain and Kuwait will represent about 11.8 percent of the EMBI Global Diversified Index and 12 percent of the EMBI Global beginning Jan. 31, according to JPMorgan. The indexes will track notes from 15 eligible issuers with a face value of about $119 billion.

"This provides more technical support to bond issuance for sovereigns in the region," said Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York. The risk return profiles in Saudi Arabia, Qatar, the U.A.E. and Bahrain look attractive, she said.

Saudi Bonds to Join JPMorgan Index in $119 Billion Gulf Addition

JPMorgan said Saudi Arabia’s approximate weight in the EMBIGD index is 3.3 percent, followed by 2.8 percent for Qatar, 2.6 percent for the U.A.E., 2.3 percent for Bahrain and 0.7 percent for Kuwait. These figures are subject to change depending on bond sales in the coming two weeks. The Gulf nations’ bonds will be added in phases over nine months.

Their inclusion may spur about $30 billion in inflows, resulting in tighter spreads and easier primary-market access, Jean-Michel Saliba, a London-based economist at Bank of America Merrill Lynch, predicted in August.

The weight of Mexico, the largest country in the EMBIGD, will decline to 4.6 percent from 5.1 percent, according to JPMorgan. The next biggest exposures come from China, Indonesia and Turkey. Instruments from the new nations will need to have due dates after March 2022, JPMorgan said.

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