Plans for a new financial index designed to track the performance of local-currency bonds in frontier markets are currently being finalized by JPMorgan, according to insights provided by investors familiar with the matter. This strategic initiative is being undertaken to satisfy a growing global appetite for diversified, high-yield debt instruments and arrives fifteen years after the introduction of the bank’s hard-currency NEXGEM index. The development of this new benchmark coincides with a prolonged period of weakness for the U.S. dollar and a series of notable rallies in specific frontier economies, including Argentina, Ecuador, and Uganda. It has been reported by leading money managers that engagements regarding the technical specifications reached an advanced stage during the latter half of the preceding year, signaling an imminent shift in how institutional capital is allocated toward less-developed financial systems.
The proposed index is expected to encompass a selection of 20 to 25 countries, with significant weightings assigned to nations such as Egypt, Vietnam, Kenya, Morocco, Kazakhstan, Pakistan, Nigeria, Sri Lanka, and Bangladesh. To prevent over-concentration, a regulatory cap on individual country weightings is being considered, with current proposals suggesting a limit between 8% and 10%. Furthermore, a minimum bond size requirement of approximately $250 million equivalent has been suggested to ensure sufficient liquidity for institutional participants. While this threshold has raised concerns regarding the inclusion of countries like Zambia, which historically issued smaller individual tranches, recent larger-scale issuances by the Zambian government have increased the likelihood of its eligibility.
The expansion of local-currency debt markets is viewed by international financial bodies, such as the World Bank and the International Monetary Fund, as a critical mechanism for reducing the frequency of debt crises. By encouraging governments to borrow in their domestic currencies rather than in dollars or euros, the risk of default triggered by currency crashes is significantly mitigated. Research conducted by firms such as Neuberger Berman indicates that tradable local-currency debt in frontier markets has tripled over the last decade, now reaching a valuation of approximately $1 trillion. Furthermore, it has been demonstrated that over the past eight years, frontier local-currency debt has outperformed mainstream emerging market indices by nearly 2.5 percentage points, suggesting that the economic potential of these regions has been systematically underpriced by global markets.
The demographic importance of frontier economies serves as a foundational element for this increased investor interest. While these nations currently represent less than 5% of global GDP and approximately 3.1% of global capital flows, they are home to one-fifth of the world’s population. It is projected that the populations of these frontier states will increase by 800 million over the next quarter-century, a growth rate that exceeds the rest of the world combined. This demographic expansion is expected to transform these regions into primary drivers of global economic growth, necessitating more sophisticated financial infrastructure to facilitate the inward flow of investment.
Operational eligibility for the new index is expected to mirror the requirements of JPMorgan’s established GBI-EM index, particularly the mandate that included bonds must possess a remaining maturity of at least 2.5 years. Projections provided by the bank suggest that the new index will offer a “pick-up” in yield of approximately 400 basis points over traditional emerging market benchmarks, with over 60% of its constituents yielding in excess of 10%. This high-yield profile is particularly attractive in an environment where confidence in the debt of developed nations has been shaken, leading to a redirection of capital toward idiosyncratic opportunities in the global south.
However, the potential for market volatility remains a concern for fund managers. The possible promotion of high-weighted countries like Egypt or Nigeria to more mainstream emerging market indices could alter the composition of the frontier index, creating a “graduation” effect that may impact long-term stability. Despite these challenges, the formal structure of the index is expected to be presented to the investment community by mid-2026, with a formal launch likely to follow shortly thereafter. The establishment of this benchmark is anticipated to play a leading role in the maturation of frontier capital markets, providing the transparency and standardized measurement required for these economies to claim a more substantial share of global finance.
