JPMorgan Chase & Co. will cut the weight of the largest bond issuers in its flagship emerging-market index, diverting investor flows from the likes of China and India toward smaller nations.
The Wall Street bank will gradually lower the issuer cap on its GBI-EM Global Diversified index in the first half of 2026, according to a client notice seen by Bloomberg. The limit will fall to 9% from 10% currently, with the implementation to be phased over a period of several months, the documents dated Friday said.
The weighting reduction will affect some of the largest bond sellers in emerging markets, including Indonesia, Mexico and Malaysia, as well as China and India. Thailand, Poland, South Africa and Brazil are among the biggest beneficiaries.
“Investors highlighted the benefits of lowering the diversification threshold to 9%, with a more balanced regional exposure that decreases the concentration risk and enhances the headline index yield,” the client notice said. “Investors were supportive of evaluating the suitability of further reductions in the country cap.”
Market reaction to the news was muted in Asia, with Malaysia closed for a holiday. China’s government bonds edged lower, mainly on better risk sentiment ahead of a call between President Donald Trump and his Chinese counterpart Xi Jinping on Friday.
Becky Liu, head of China macro strategy at Standard Chartered Bank, expects the index change to have a limited impact on Chinese bonds. She estimates the potential outflow from move to be around US$2 billion ($2.56 billion), which is tiny compared with the total foreign holdings of about US$5.6 trillion.
See also: Global bonds climb 20% from 2022 low with Fed set to resume cuts
Global index-based investors have been underweight Chinese government bonds in recent years due to low yields, Liu said. “A further small reduction of index weighting will unlikely lead to much positioning adjustments from here on.”
A JPMorgan spokesperson declined to comment. Bloomberg reported the bank had been soliciting feedback from clients on a change to the issuer cap earlier this year.
JPMorgan’s index is the main benchmark for developing-nation debt and followed by funds managing over US$200 billion. Changes to its composition impact global investment flows, such as when Chinese bonds were phased into the benchmark in 2020 and when Indian debt was added last year.
On Friday, JPMorgan also placed Saudi Arabia and the Philippines on watch for possible inclusion into the benchmark gauge for local debt, citing market reforms implemented by both nations over the past few years. Estimated weightings would be about 2% and 1% respectively if they were added, the bank said.
