Tomorrow, Saudi market to join JPMorgan indices

Tomorrow, Saudi market to join JPMorgan indices
  • Saudi Arabia enters the five largest issuers of debt instruments in emerging markets.

The ninth and final stage of Saudi Arabia’s accession to JPMorgan emerging market bonds, joining to which was gradual for nine months this year, to be completed on Monday, officially entering the club of the five largest issuers of debt instruments in emerging markets.

Thus, the Kingdom’s sovereign debt will become an integral part of the portfolio of global asset management companies (both inactive and active).

The most important of these indicators is the Global Emerging Markets Diversified Index (EMBI GD), under which debt instruments have a nominal value of more than $300.bn, with the weight of Saudi debt instruments of 3.30%, and Saudi Arabia ranks fifth among 72 emerging markets.

The Public Debt Office of the Ministry of Finance had earlier predicted that the inflows to Saudi debt instruments would reach about $11bn between January 31 (the date of the actual accession of the first stage) and September 30 this year.

According to specialists in fixed income markets, accession should have brought between 25% and 33% of “additional” inflows into the kingdom’s sovereign debt instruments – investments in Saudi securities that were not affordable before 2019.

This is up to 50% for Kuwait, which has one eligible issue of 10-year bonds.

In the same context, a document issued by the operator of JPMorgan indices revealed the weight of Gulf debt instruments in JPMorgan indices of emerging market bonds. Of the four indicators of dollar issues, the share of sovereign debt instruments of Saudi Arabia is between 3.30% and 8.66% of the total weights of other countries that have these indicators.

The share of the Gulf region in the four bond indices is between 13.88% and 17.94%.

Weights of Debt instruments for Saudi Arabia

The document shows the clear weight of Saudi Arabia in the emerging markets indicators of fixed income instruments, where Saudi Arabia topped between the fourth and fifth largest issuers, its debt instruments are included among the four indices that follow the fixed income instruments coming from emerging markets, followed by Russia in some cases, while Mexico, China, and Indonesia are the top three.

The weights of debt instruments for Saudi Arabia and the Gulf are likely to be higher than those figures as the countries of the region, as well as government companies eligible to join these indices, issued new debt instruments this year.

It was not possible to obtain the latest determination from the operator of the JPMorgan indices, because these updates are directed to asset managers who use the indices.

The amount of Gulf flows

In general, there is a discrepancy in the amount of inactive and active flows that are expected to be attracted to Gulf debt instruments, and this is because active funds had bought a large amount of Gulf debt late last year (in anticipation of the announcement of accession early this year and this is what happened).

The forecasts of consultancy firms by international and regional asset management companies shows that the expected inflows to Saudi Arabia before the announcement of joining in January were between $10bn and $11bn and the UAE at $8bn, but after the official accession (in late January) this figure reached $7bn for Saudi Arabia, $5bn for the UAE and about $30bn for the Gulf.