Consultations for the listing of GCC countries in the Emerging Market Bond Index

The Gulf States are winning a second president victory to become investment badets in the mainstream.
In June, the composite index Morgan Stanley announced that Saudi Arabia would join the stock index which represents about 1.5 trillion global badets – following the Qatar joins the UAE in 2014. Kuwait is expected to enter in 2020.
JPMorgan is now initiating consultations on the accession of the Quartet,, To its highly influential group, composed of indicia of Sovereign-denominated Equities According to Abhishek Kumar, head of emerging market bonds at State Street Global Advisors, "if Morgan Stanley wants to continue to join these countries, this could be a major boost for the region. He estimated that the move could lead to negative inflows of about $ 45 billion, equivalent to 30% of the value of sovereign bonds in the Gulf, on the basis of $ 363 billion estimated by Morgan Stanley.
Kumar added: "This could reduce the cost of financing and possibly lead to increased regional growth."
With the exception of Oman, the Gulf States were excluded from the JPMorgan & # 39; s Emerging Markets Bonds According to the World Bank, gross national income per capita is higher than the ceiling of $ 18,769, and sometimes much higher.
To overcome this obstacle, JPMorgan proposes in its consultation paper, the Financial Times, Countries where the price of a large basket of goods and services is less than 60% of their price in the United Nations States. measure excels the introduction of all Gulf states – but this does not seem to imply that other countries will adhere to it.
Commenting on this, Brian Carter, BNP Paribas Asset Manager Emerging Markets, said: "The main concern We have the consistency and predictability of the rules."
JPMorgan refused to speak to the Financial Times, but the bank American can draw its consolation from the fact that most investors seem to support the proposal to include the Gulf States. ] Even Carter, who currently holds large holdings in Gulf bonds "almost everything", argues that it is clear
Jean Dean, head of research at Ashmore Group, which invests in emerging markets, has welcomed the idea of ​​adding more countries to the emerging market benchmark, considering that the index is the most
Saudi bonds, for example, are more likely "To be a safe haven in emerging markets, like China, which are useful because they are very different from Venezuelan obligations, for example."
] The price index used by JPMorgan to justify the accession of Gulf countries "is part of the spirit of Emerging Markets." This gap (with price levels in the developed world) is beginning to fade with the progress of the countries. "
Claudia Kallick, Emerging Markets Portfolio Manager at M & G Investments, noted that some Gulf countries" Entry Levels are narcotic, but that does not necessarily mean from the market point of view that they are developed countries. "
"From a business perspective, most emerging market investors are anyway looking for these countries, therefore, it is certainly reasonable."
The inclusion of states Gulf will have a significant impact. According to the consultation paper, the five potential candidates will likely have a total weight of 12.3% in JPMorgan's hard currency sovereign debt universe. This is much higher than the current level of Mexico, the only country in the index, with a weight of 5.1%
That would triple the weight of the Middle East region from 6% at 18% in the index (17%) and in Africa (11%), but less than Latin America (32%) and Europe (22%).
According to Kallik, of M & G Investments, the proposed relative weight of 18% is likely to further increase in the coming years, with the Gulf countries accounting for about 25 to 30% of the issue total obligations. "In the light of fiscal deficits, you will see a large amount of emissions over the next few years, so that the relative weight of these countries will increase," he said. "He said.
" This makes the index a little more relevant to the price of oil, given that we already have Russia, Mexico, Malaysia and a number of small African producing countries of oil. "
A decision is expected in the third quarter, but Dean says:" From my point of view, the subject is finished. "