JPMorgan is set to launch its Government Bond Index–Emerging Markets Edge (GBI-EM Edge) by the end of September, tracking about $328 billion of local-currency government debt across 26 markets, 425 instruments, and 24 currencies. The new index will have Africa accounting for 44.5%, surpassing Asia's 31.5% allocation. This development puts the continent at the center of a benchmark that could increase global investor attention on its domestic debt markets.
The African allocation is spread across 10 countries, with Egypt and Morocco each receiving the maximum 8% weighting allowed for a single country. Nigeria follows with 7.4%, while Kenya receives 6.91%. Tunisia accounts for 5.32%, followed by Uganda at 4.84%. Côte d'Ivoire, Angola, Zambia, and Ghana also have allocations in the new benchmark. The index includes about $17.47 billion of eligible Nigerian government debt across 16 instruments.
Thomas Christiansen, head of emerging-market fixed income at London-based fund manager UBP, said the index reflects the evolution of frontier-market investing. He noted that the index would not have been possible 10 years ago, as people are waking up to the fact that these markets are really interesting and help diversify portfolios. The new index comes as international investors search for higher-yielding assets and greater portfolio diversification.
Nigeria's inclusion in the index provides renewed international visibility for its local government bond market. The country's bonds have an average yield to maturity of 17.1%, average duration of 3.38 years, and a B- sovereign credit rating. The inclusion does not represent Nigeria's reinstatement in JPMorgan's better-known GBI-EM Global Diversified Index but is a separate benchmark designed to capture local-currency government debt from frontier and emerging economies.
The attraction of the new benchmark is largely its yield, with the GBI-EM Edge having a nominal yield of about 10.4%, around 440 basis points above JPMorgan's mainstream emerging-market local-currency index. Nigeria offers an even higher average yield of 17.1%, potentially appealing to investors seeking income in a low-growth global environment. However, high local-currency yields do not necessarily translate into high returns for foreign investors due to exchange-rate movements.
The new benchmark could deepen Africa's local debt markets by increasing the visibility of local government securities and encouraging investors to assess markets that previously attracted limited international attention. For African governments, greater foreign participation in local-currency debt markets could broaden the investor base and provide an additional source of financing while reducing reliance on foreign-currency borrowing.
Angola is already seeking to increase foreign participation in its domestic government bond market as it works to broaden its funding base and deepen its capital market. Finance Minister Vera Daves de Sousa said the government was in discussions with JPMorgan over potential inclusion in a new frontier-market local-currency debt index and is preparing to meet international investors in Luanda to develop a framework for broader foreign access to its $18.6 billion domestic government bond market.
Key points
- Africa accounts for 44.5% of JPMorgan's new frontier-market local-currency government bond index.
- Nigeria has a 7.4% allocation in the new index, with its bonds offering an average yield to maturity of 17.1%.
- The new benchmark could deepen Africa's local debt markets and encourage governments to improve bond-market infrastructure.
