Attracting attention: JPMorgan income fund to invest in Pakistani bonds

Investors seek better returns as interest rates hit new lows in developed economies.

JPMorgan, one of the largest investment banks in the world, has launched an investment fund that will invest in the dollar-denominated debt issued by a list of 18 countries that includes Pakistan.

According to a report on businesswire.com, the company is describing the fund as the world’s first that offers investors in developed markets exposure to non-investment grade debt issued by what are commonly referred to as “frontier markets”, a category in which Pakistan has currently been placed in by several global investment services, including the widely used MSCI indices. JPMorgan is referring to these markets as “next generation”.

“Growing demand for exposure to Next Generation markets is part of the expansion and deepening of the emerging markets debt asset class. The focus on Next Generation markets is expected to continue as investors seek diversification and higher yields. With this fund, we will provide investors with a well-defined and diligently-managed benchmark for these markets within the emerging markets framework,” Gloria Kim, JP Morgan’s Head of Global Index Research said.

The fund, labelled “Nexgem” closely follows the methodology of JPMorgan’s Emerging Markets Bond Index (EMBI) Global Diversified, which is the most widely used benchmark for investors in dollar-denominated emerging market government bonds. Nexgem selects countries from this benchmark that meet our criteria for Next Generation Markets.

Today, Nexgem includes 18 countries representing Sub-Saharan Africa, Central American, the Caribbean, Middle East, Europe and Asia: Belarus, Belize, Dominican Republic, Ecuador, Egypt, El Salvador, Gabon, Georgia, Ghana, Iraq, Ivory Coast, Jamaica, Jordan, Nigeria, Pakistan, Senegal, Sri Lanka, and Vietnam. Allocation to Next Generation markets will likely increase as investors seek diversification and higher yields. The fund serves as a tracker for these markets.

“Next Generation emerging markets will continue to gain investor interest due to high yield and continued growth momentum,” Joyce Chang, Global Head of Emerging Markets and Credit Research, said.

It is not immediately clear how much of the portfolio will invest in Pakistan, which currently has at least $500 million in dollar-denominated bonds trading in global markets. The bonds have been rated B- by the ratings agency Standard & Poors, well below investment grade, and currently yield approximately an 11% return. The bonds were originally issued with a stated rate of 6%, but have since begun to yield more now that the bond prices have sharply dropped.

Published in The Express Tribune, December 19^th, 2011.