Saudi Arabia, four other Gulf states to enter key JP Morgan bond indexes

Saudi Arabia, Bahrain, Kuwait, Oman and Qatar have issued a quarter of all new debt sold by emerging market countries in each of the last three years. (AFP)
Updated 26 September 2018

Saudi Arabia, four other Gulf states to enter key JP Morgan bond indexes

  • The indexes are key performance benchmarks for international investors in emerging market debt
  • Membership in them can help a country sell bonds and reduce its borrowing costs

DUBAI: Saudi Arabia and four other Gulf states will enter JP Morgan’s emerging market government bond indexes next year, a move likely to lure billions of dollars of new foreign investment into their debt, according to a JP Morgan statement sent to investors.
The indexes are key performance benchmarks for international investors in emerging market debt, so membership in them can help a country sell bonds and reduce its borrowing costs.
Sovereign and quasi-sovereign debt issuers from Saudi Arabia, Qatar, the United Arab Emirates, Bahrain and Kuwait will become eligible for the EMBI Global Diversified (EMBIGD), EMBI Global (EMBIG) and EURO-EMBIG indexes, according to the statement, which was seen by Reuters on Wednesday.
Their entry will be phased in between Jan. 31 and Sept. 30. Both conventional bonds and sukuk, or Islamic bonds, will be eligible for inclusion in indexes, but sukuk will need to have a credit rating from at least one of the three major rating agencies to be included.
JP Morgan’s decision follows a surge of debt issuance from the Gulf Arab region in the past few years, as low oil prices force most countries to fund part of their state spending in the international debt markets.
Saudi Arabia, Bahrain, Kuwait, Oman and Qatar have issued a quarter of all new debt sold by emerging market countries in each of the last three years.
The inclusion of Gulf Cooperation Council countries in the indexes will leave them representing around 11.2 percent of JP Morgan’s EMBI Global Diversified and EMBI Global series, the statement said.
“It is estimated that around $360 billion of assets under management are benchmarked against the EMBIG family, with the EMBIG diversified at around $300 billion,” said Zeina Rizk, director of fixed income asset management at Arqaam Capital in Dubai.
Rizk estimated this would translate into about $30 billion of inflows into the five countries’ debt.
“Those inflows are not going to come on day one, but the tailwind resulting from the inclusion headline, coupled with pegged currencies, strong oil prices, a relative immunity from trade wars and high credit quality, leads us to the view that the GCC has better value than the rest of emerging markets.”
The minimum size for inclusion in the indexes is $500 million, and during the inclusion process, instruments will need to have a maturity date beyond March 2022, the statement said.


China's aviation regulator raised concerns with Boeing on 737 MAX design changes

Updated 12 December 2019

China's aviation regulator raised concerns with Boeing on 737 MAX design changes

  • China is reviewing the airworthiness of the plane
  • China was first country to ground plane in March

BEIJING: China’s aviation regulator raised “important concerns” with Boeing Co. on the reliability and security of design changes to the grounded 737 MAX, it said on Thursday, but declined to comment on when the plane might fly again in China.
China is reviewing the airworthiness of the plane based on proposed changes to software and flight control systems according to a bilateral agreement with the United States, Civil Aviation Administration of China (CAAC) spokesman Liu Luxu told reporters at a monthly briefing.
He reiterated that for the plane to resume flights in China, it needed to be re-certified, pilots needed comprehensive and effective training to restore confidence in the model and the causes of two crashes that killed 346 people needed to be investigated with effective measures put in place to prevent another one.
China was the first country to ground the 737 MAX after the second crash in Ethiopia in March and had set up a task force to review design changes to the aircraft that Boeing had submitted.
The US Federal Aviation Administration (FAA) will not allow the 737 MAX to resume flying before the end of 2019, its chief, Steve Dickson, said on Wednesday.
Once the FAA approves the reintroduction into service, the 737 MAX can operate in the United States, but individual regulators could keep the planes grounded in other countries until they complete their own reviews.
“Due to the trade war, the jury is still out on when China would reintroduce the aircraft,” said Rob Morris, Global Head of Consultancy at Ascend by Cirium.
Chinese airlines had 97 737 MAX jets in operation before the global grounding, the most of any country, according to Cirium Fleets Analyzer.