Tomorrow, Saudi market to join JPMorgan indices

Tomorrow, Saudi market to join JPMorgan indices
Tomorrow, Saudi market to join JPMorgan indices
  • Saudi Arabia enters the five largest issuers of debt instruments inemerging 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 ofglobal asset management companies (both inactive and active).

Themost important of these indicators is the Global Emerging Markets DiversifiedIndex (EMBI GD), under which debt instruments have a nominal value ofmore than $300.bn, with the weight of Saudi debt instruments of 3.30%, and SaudiArabia ranks fifth among 72 emerging markets.

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

Accordingto specialists in fixed income markets, accession should have brought between25% and 33% of "additional" inflows into the kingdom's sovereign debtinstruments – investments in Saudi securities that were not affordable before2019.

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

Inthe same context, a document issued by the operator of JPMorgan indicesrevealed the weight of Gulf debt instruments in JPMorgan indices of emergingmarket bonds. Of the four indicators of dollar issues, the share of sovereigndebt instruments of Saudi Arabia is between 3.30% and 8.66% of the totalweights of other countries that have these indicators.

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

Weights of Debt instruments for Saudi Arabia

Thedocument shows the clear weight of Saudi Arabia in the emerging marketsindicators of fixed income instruments, where Saudi Arabia topped between thefourth and fifth largest issuers, its debt instruments are included among thefour indices that follow the fixed income instruments coming from emergingmarkets, followed by Russia in some cases, while Mexico, China, and Indonesiaare the top three.

The weightsof debt instruments for Saudi Arabia and the Gulf are likely to be higher thanthose figures as the countries of the region, as well as government companieseligible to join these indices, issued new debt instruments this year.

Itwas not possible to obtain the latest determination from the operator of theJPMorgan indices, because these updates are directed to asset managers who usethe indices.

The amount of Gulf flows

Ingeneral, there is a discrepancy in the amount of inactive and active flows thatare expected to be attracted to Gulf debt instruments, and this is becauseactive funds had bought a large amount of Gulf debt late last year (inanticipation of the announcement of accession early this year and this is whathappened).

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

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