Diversification in focus: JP Morgan announces changes to EMD benchmarks
As global investors continue to seek diversified exposure to emerging market debt, adjustments to key benchmarks are important developments. JP Morgan’s latest proposed changes to their flagship local currency EMD indices, announced in their annual Index Governance review, further evolves the asset class by broadening the diversification of the local currency index, the Global Bond Index-Emerging markets (GBI-EM). Along with the potential addition of three new countries to the index, JP Morgan is also lowering the threshold cap for country weightings.
This year’s announcement is earlier than usual and includes significant changes to the GBI-EM Index. The most notable proposals include:
- Saudi Arabia has been placed on the watchlist for inclusion, pending progress on secondary market liquidity and evolving the auction process. A formal index inclusion announcement may materialize after six-to-nine months; if included, the estimated weight of Saudi Arabia would be approximately 2.2% across seven bonds.
- The Philippines is also on the watchlist for inclusion, pending progress on secondary market liquidity and tax hurdles that have been difficult for foreign investors to navigate. As with Saudi Arabia, a formal index inclusion announcement may materialize after six-to-nine months; if included, the estimated weight of the Philippines would be around 1.2% across seven bonds.
- Paraguay will be included in the index in the first half of 2026, with an expected weight of 0.04% across two bonds.
- The threshold cap for GBI-EM weights will be lowered to 9% from 10% in the first half of 2026 over a five-month phase-in period. This will result in the index weights of the larger countries being reduced, while weights of smaller countries will be increased. Notably, six countries would reach the 9% cap, compared to four at present.
These proposed changes to the GBI-EM local currency index address ongoing concerns about index diversification. With the addition of Paraguay, the number of country issuers in the index will increase to 20 from 19, with this increasing to 22 if Saudi Arabia and the Philippines were to be included. The lowering of the threshold to 9% also allows the smaller weights in the index to expand. As more countries are added, this will provide additional diversification benefits.
The impact of the proposed changes
We include below an illustration of what a phased country cap reduction would look like alongside the potential new index additions of three new countries (as sourced from JP Morgan’s 2025 EM Index Governance Results, Research - J.P. Morgan Markets).
| Country | Current Weight | 9.8% Cap | 9.6% Cap | 9.4% Cap | 9.2% Cap | 9.0% Cap | Weight Change (bps) |
| Saudi Arabia | 0.00% | 0.45% | 0.90% | 1.35% | 1.80% | 2.21% | 221 |
| Philippines | 0.00% | 0.25% | 0.50% | 0.75% | 1.00% | 1.27% | 127 |
| Paraguay | 0.00% | 0.04% | 0.04% | 0.04% | 0.04% | 0.04% | 4 |
| China | 10.00% | 9.80% | 9.60% | 9.40% | 9.20% | 9.00% | (100) |
| India | 10.00% | 9.80% | 9.60% | 9.40% | 9.20% | 9.00% | (100) |
| Indonesia | 10.00% | 9.80% | 9.60% | 9.40% | 9.20% | 9.00% | (100) |
| Mexico | 10.00% | 9.80% | 9.60% | 9.40% | 9.20% | 9.00% | (100) |
| Malaysia | 9.89% | 9.80% | 9.60% | 9.40% | 9.20% | 9.00% | (89) |
| Thailand | 8.76% | 8.79% | 8.84% | 8.89% | 8.94% | 9.00% | 24 |
| Poland | 7.80% | 7.82% | 7.87% | 7.91% | 7.96% | 8.01% | 21 |
| South Africa | 7.20% | 7.22% | 7.27% | 7.31% | 7.35% | 7.40% | 20 |
| Brazil | 6.72% | 6.74% | 6.78% | 6.82% | 6.86% | 6.90% | 18 |
| Czech Republic | 4.86% | 4.88% | 4.90% | 4.93% | 4.96% | 4.99% | 13 |
| Colombia | 3.74% | 3.75% | 3.77% | 3.79% | 3.82% | 3.84% | 10 |
| Romania | 3.33% | 3.33% | 3.35% | 3.37% | 3.39% | 3.42% | 9 |
| Hungary | 2.20% | 2.21% | 2.22% | 2.24% | 2.25% | 2.26% | 6 |
| Peru | 1.85% | 1.85% | 1.87% | 1.88% | 1.89% | 1.90% | 5 |
| Chile | 1.67% | 1.67% | 1.68% | 1.69% | 1.70% | 1.71% | 5 |
| Turkey | 1.29% | 1.29% | 1.30% | 1.31% | 1.32% | 1.33% | 4 |
| Serbia | 0.28% | 0.28% | 0.28% | 0.29% | 0.29% | 0.29% | 1 |
| Dominican Republic | 0.27% | 0.27% | 0.27% | 0.27% | 0.27% | 0.27% | 1 |
| Uruguay | 0.15% | 0.15% | 0.15% | 0.15% | 0.15% | 0.15% | 0 |
Source: JP Morgan
State Street Investment Management is one of the world’s largest managers of indexed emerging market debt and our team of EMD experts are available to provide further guidance and analysis for you on how these proposed changes may impact your emerging market debt portfolio. For more information on our emerging market debt capabilities, please visit our website.