JPMorgan is set to launch its long-awaited "GBI-EM Edge" frontier market local currency government bond index by end September, with Sri Lanka slated to be among the top weighted countries following its strong post-crisis market rally, according to a Reuters report.

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LONDON, Sept 14 (Reuters) — JPMorgan is set to launch its long-awaited "frontier" market local currency government bond index by end-September, giving investors a new benchmark for nearly $330 billion of debt across some of the world's fastest-growing economies.

Coming 15 years after its hard-currency NEXGEM frontier index, the Wall Street bank's new "GBI-EM Edge" benchmark will cover bonds from 26 countries, a source familiar with the now-finalised plans told Reuters. Those set to have the biggest weightings in the new index include Egypt, Vietnam, Morocco, Kazakhstan, Bangladesh, Pakistan, Nigeria, and Sri Lanka, many of which have enjoyed strong market rallies in recent years following crises.

According to the World Bank, frontier economies are home to a fifth of the world's population but account for just 3.1% of global capital flows and less than 5% of global GDP. Their populations, however, are expected to increase by 800 million over the next 25 years — more than the rest of the world combined — meaning they will play an increasingly important role in global economic growth.

Economists also see the index helping expand local currency markets, a strategy long championed by the World Bank and IMF to reduce debt crises caused when currency crashes leave governments unable to pay dollar debt.

Earlier this week, the finance minister of Angola, a country included in the new index, stated that this benchmark was one of the reasons it was opening its $18.6 billion domestic bond market more widely.

FINAL FRONTIERS

JPMorgan has been working on the new index for years in response to growing investor appetite for higher-yielding government debt, which has been outperforming other markets.

The source, who provided details on condition of anonymity, said only bonds of $250 million equivalent or above will be included, requiring at least 2.5 years to maturity, with maximum country weightings capped at 8%.