Sri Lanka Assigned 7.5% Weight in J.P. Morgan's New $330bn Frontier Bond Index

Sri Lanka has been assigned a 7.5 percent weighting in J.P. Morgan’s new frontier market local-currency government bond index, placing the country among the eight largest components of a benchmark set to track approximately US$ 330 billion in sovereign debt across 26 countries.

The benchmark, named the GBI-EM Edge, is scheduled to launch by the end of September, according to a J.P. Morgan research note dated September 14. Sri Lanka’s 7.5 percent allocation sits 0.5 percentage points below the index's single-country cap of 8.0 percent.

Index Weighting and Composition

Six countries—Vietnam, Egypt, Morocco, Pakistan, Bangladesh, and Kazakhstan—carry the maximum 8.0 percent weighting. Nigeria follows closely behind Sri Lanka with a 7.4 percent allocation. Together, the seven countries at or near the 8.0 percent cap constitute 55.5 percent of the index, rising to 62.9 percent when including Nigeria.

Geographically, African nations represent nearly 45 percent of the GBI-EM Edge, while Frontier Asia accounts for approximately one-third of the total index weight.

Yield and Market Scale

The GBI-EM Edge carries a nominal yield of approximately 10.4 percent, which is about 440 basis points higher than J.P. Morgan's mainstream emerging market local currency index. Index back-testing indicates that annualised returns over the past nine years would have been 1.2 percentage points higher than the standard emerging market gauge.

Analysts estimate that the global pool of tradeable local-currency emerging market debt has tripled over the last decade to roughly US$ 1 trillion, meaning the new index encompasses approximately one-third of that market segment. According to World Bank data, frontier economies house 20 percent of the world’s population but account for 3.1 percent of global capital flows and less than 5 percent of global gross domestic product.