ISLAMABAD: Pakistan is set to be among the key countries featured in JPMorgan’s new frontier market local-currency bond index, aimed at tracking high-yield debt in smaller economies. The index, covering 20 to 25 nations, will give more weight to countries like Egypt, Nigeria, and Vietnam.
The Wall Street bank is finalizing plans for an index that will track local-currency government bonds issued by frontier economies, markets that sit just below mainstream emerging economies but offer higher returns and higher risks. The move comes around 15 years after JPMorgan launched its hard-currency frontier index, known as NEXGEM.
Investors consulted by Reuters said the proposed index is likely to cover 20 to 25 countries, with Pakistan listed among those expected to carry the largest weightings, alongside Egypt, Nigeria, Vietnam, Kenya, Bangladesh and Sri Lanka.
Discussions between JPMorgan and global fund managers reportedly gathered pace in the second half of last year, as interest in frontier markets grew amid a prolonged weakness in the US dollar and sharp rallies in some higher-risk economies.
While JPMorgan has declined to comment publicly, investors say the bank could share a clearer structure for the index by mid-2026, with a formal launch expected next year. Some believe an initial announcement may come as early as March.
How the Index May Work
According to investors, the index will place limits on how much any single country can dominate. No country is expected to have a weighting above 8 to 10%, helping reduce concentration risk.
Only bonds worth at least $250 million (or the local-currency equivalent) are expected to qualify, and securities must have more than two and a half years remaining before maturity. These criteria are designed to ensure liquidity, though they may exclude smaller issuers.
Zambia, for example, was initially left out due to its smaller bond sizes, though recent larger issuances have renewed hopes of its inclusion.
Why Frontier Debt is Drawing Attention
Frontier markets have long remained on the sidelines of global capital flows, despite being home to roughly one-fifth of the world’s population. According to World Bank data, these economies account for just over 3% of global capital flows and less than 5% of global GDP.
Yet their bond markets have grown rapidly. Estimates show that tradable local-currency frontier debt has expanded to nearly $1 trillion, tripling over the past decade.
Asset managers say returns have also been strong. Over the last eight years, frontier local-currency bonds have outperformed broader emerging-market debt, suggesting that growth prospects in these economies may be undervalued.
JPMorgan has estimated that the new index could offer a yield advantage of around 400 basis points over its mainstream emerging-market bond index, with a majority of included bonds yielding above 10%.
What it Means for Pakistan
For Pakistan, potential inclusion could improve visibility among global investors who use JPMorgan indices to guide fund allocations and measure performance. Index membership often encourages passive investment flows and can deepen local bond markets over time.
International institutions such as the World Bank and IMF have long argued that stronger local-currency debt markets can reduce the risk of debt crises, especially when currency depreciation makes foreign-currency borrowing harder to repay.
