Saudi Arabia is fourth globally in the emerging market bond index


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Elaf from Riyadh: I became Saudi Arabia ranks fourth in terms of weight in the JP Morgan Index of “Global Diversified Emerging Markets Bonds”, with the total market value of its debt instruments.

According to Al-Eqtisadiah, Saudi Arabia reached $80.6 billion by the end of the first quarter of this year, supported by the accession of a number of Saudi international government bonds during the last period to the index.

Archana Achuthan, a spokeswoman for JP Morgan, told the Economist that Mexico ranked first, followed by Indonesia, China and Saudi Arabia.

Saudi Arabia weight gain ارتفاع

The EMBI GD index tracks the impact of dollar-denominated bonds for emerging markets, while assets of more than $341 billion follow the benchmark index, in which Saudi Arabia weighs 3.90 percent, according to the update, which the newspaper obtained from the American Investment Bank, which confirmed that this figure is considered More than that in reality.

At a time when the weight of Saudi Arabia in the dollar debt index rose by 1.03 percent on an annual basis, the market value witnessed a remarkable rise of 26.4 percent on an annual basis, according to the monitoring of the economic reports unit in the newspaper.

The market value stood at $63.7 billion at the end of March 2020, before reaching $80.6 billion at the end of the first quarter of this year.

As for issuances denominated in the currency of the European Union, Saudi Arabia advanced to the 16th place in the global diversified emerging market bond index, denominated in the euro currency EMBI GD, managed by “JP Morgan”.

According to data obtained by Al-Eqtisadiah from the American Investment Bank, the weight of Saudi Arabia in this indicator increased by 17.5 percent on an annual basis, as the weight stood at 2.61 percent at the end of the first quarter of this year, compared to 2.22 percent at the end of March. (March) 2020.

The accounts of the reports unit in the newspaper “Al-Iqtisadiah” showed that the market value of debt instruments denominated in euros recorded the largest increase on an annual basis of 61.5 percent, reaching 4.6 billion euros at the end of the first quarter, compared to 2.8 billion euros at the end of the same period of the year. the past.

The inclusion of “JP Morgan” of Saudi debt instruments, traded on international stock exchanges, to its indices more than two years ago, contributed to a steady improvement in secondary liquidity and increased the base of foreign investors from what it was in 2018.

And fixed income instrument funds, affiliated with global asset management companies, are structured to automatically track the weights of each country (or company) included in the index, which increases the flow of investments and reduces the cost of borrowing.

record jumps

The Gulf countries’ supply of dollar debt instruments recorded record jumps in the two most important indicators to measure the performance of emerging market bonds belonging to JPMorgan.

Al-Eqtisadiah’s monitoring showed that the weight of the Gulf region recorded at the end of last year a growth rate of 885 percent, compared to the total weight of 2.1 percent at the end of 2018, as the weight of the Gulf countries combined reached 20.7 percent in the international index of emerging market bonds EMBI Global by the end of the year the past.

As for the “Global Diversified Emerging Market Bond Index” EMBI GD, the growth rate in the weights of the Gulf region reached 172 percent in two years, as the “Al-Eqtisadiah” monitoring, which was based on the data of the First Abu Dhabi Bank, showed that the weight of the Gulf countries reached 16.9 percent by the end of the year. 2020 compared to 6.2 percent in 2018.

Thus, the sovereign debt of the Gulf becomes an integral part of the portfolios of global asset management companies, whether passive or active.

graded stages مراحل

It is known that the National Center for Debt Management, on behalf of the Ministry of Finance, expected in 2019 that the value of flows towards Saudi debt instruments would reach $11 billion, between January 31, 2019 – the date of the actual joining of the first phase – and September 30. of the same year.

According to the expectations of specialists in the fixed income markets, it is assumed that this accession has brought between 25 percent to 33 percent as “additional” flows towards Saudi Arabia’s sovereign debt instruments, which are investments in Saudi securities, that were not available before 2019.

While this percentage is up to 50 percent for Kuwait, which has one eligible issue, which is the ten-year bonds.

Because of the “added” and old Gulf debts reaching between 15 and 20 percent, the index organizers decided that the process of entering the indexes should take place in several stages, over a period of nine months, so that the large size of the Gulf debt would not cause disturbances with other debts with the transfer of funds to Gulf debt instruments.

Bonds exit from indices

Issuances due this year are expected to be released from the “JP Morgan” indices, according to the regulatory guidelines for each index.

Saudi Arabia has a dollar issue of $5.5 billion “five years”, which is due in October (October), according to the “Sea Bonds” financial data platform.

This issue is considered distinct, as it was among the first Saudi issuances of international bonds in 2016, which was warmly welcomed by foreign investors.

The monitoring of the economic reports unit on maturity dates was based on data obtained from the “Facttest” platform for financial services.

It is noteworthy that “Facttest” is one of the most popular financial analytics platforms used by the global investment community to evaluate securities and build investment decisions.

Amount of Gulf flows

In general, there is a discrepancy in the amount of passive and active flows, which are expected to be attracted to Gulf debt instruments, and the reason for this is due to the fact that in late 2018, active funds purchased a huge amount of Gulf debt “in anticipation of the announcement of their accession in early 2019 and this is what happened.”

Al-Eqtisadiah’s monitoring, based on the expectations of expert houses in global and regional asset management companies, showed that the expected flows to Saudi Arabia before the news of joining in January 2019 were between 10 and 11 billion dollars, and to the Emirates at a value of eight billion dollars.

But after the official accession, this figure has reached seven billion dollars for Saudi Arabia, five billion dollars for the UAE and about 30 billion dollars for the Gulf region.

This matter was confirmed for the first time by a research note issued by Bank of America Merrill Lynch, in which he mentioned that many funds increased their exposure to Saudi Arabia, which somewhat reduced the chances of more buying, but the responses of investors, at that time, indicated that they They have not yet reached the full weighting, while passive investors are moving in line with the indicators, which add a certain percentage of debt instruments on a monthly basis.

Joining was not easy

Fixed income instruments have always suffered from underappreciation, as assets distinct from other emerging markets. As a result, this asset quality is not found in most of the portfolios of asset managers that specialize in investing in emerging markets.

However, the whole thing began to change gradually at the end of January 2019 when “JP Morgan” indices began adding Gulf debt to its main indices, the performance of which is tracked by funds specialized in fixed income instruments.

But the process of joining this indicator has been significantly delayed. This is due to the existence of a strict criterion stating that the Gulf countries rank very high on the World Bank’s high-income classification index, exceeding the normal criteria, which qualify for inclusion in the emerging market index, which is that the per capita income is less than $20,000.

The per capita income in the UAE is $40,000, compared to $10,000 in Brazil.

However, another methodology has been found that allows the Gulf countries to be included in the emerging market classification, such as the “purchasing power parity ratios”, which are used by the International Monetary Fund and the Organization for Economic Cooperation and Development to compare the wealth of different countries.

This indicator can sometimes be used to compare standards of living between two or more countries. This criterion is also used to measure the cost of purchasing a basket of similar commodities for the currencies of other countries in emerging markets.

With regard to sukuk, the internal systems of the indices allow the selection of sukuk issued by qualified issuers, provided that the sukuk has a credit rating from one of the international credit rating agencies. Historically, the sukuk has been added to the index since late 2016.

Monitoring the economic reports unit in the newspaper, on the yield curve for Saudi Arabia, was based on several sources, namely the “IHS Markit” platform for analytics and financial data, as well as the “Bond Evalu” platform, which offers investors the advantage of revealing the offers of buying and selling bonds, which are in their portfolios from order to control the investment decision of the security.


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