JPMorgan Chase & Co. plans to exclude the UAE from its emerging market bond indices by June, after the Gulf state exceeded the bank's wealth criteria for three consecutive years.
The New York-based bank explained in a statement that the UAE, which constitutes 4.1% of the JPMorgan Global Diversified Emerging Markets Bond Index, will be removed through four equal reductions starting on March 31. The country will also be completely excluded from the Eurobond group, which has a relative weight of 1%, on March 31 as well.
The wealth of the Gulf states is incompatible with the classification of emerging markets.
The growing wealth of Middle Eastern countries has led to a clear contradiction with their classification as emerging markets in recent years, prompting JPMorgan to exclude Kuwait and Qatar from its emerging market indices last year.
These indicators are widely followed by investors, and the loss of three countries with a high investment rating within a year could lead to a reduction in investment flows to them in the short term, and a change in investor categories in the long term.
Expectations of a widening of the index's main margin
As a result of this exclusion, JPMorgan index researchers, including Kumaran Ram, expect the main spread—also known as the yield-to-maturity spread in a worst-case scenario—for the diversified global emerging market bond index to widen by 10 basis points by the end of the phase-out period.
It is worth noting that this margin, which represents the additional return that investors demand to hold emerging market bonds compared to US Treasury bonds, settled at 247 basis points on Monday.
