JPMorgan reclassifies Qatar and Kuwait as developed markets

Qatar, Kuwait reclassified as developed markets: JPMorgan Chase has reclassified Qatar and Kuwait as developed markets, with the bank set to remove the two countries from its Emerging-Markets Bond Index (EMBI) over a six month period starting with the month-end rebalancing on March 31, JPMorgan’s Global Index Research team said in a statement seen by Bloomberg.

What this means: New bond issuances from Qatar and Kuwait won’t be included in JP Morgan’s EM index, including the two benchmark-sized sovereign USD-denominated bonds Qatar will sell on Thursday. For Qatar, “the reclassification may potentially spark flows into the country from developed-market bond investors,” according to Bloomberg.

The UAE could be next: The United Arab Emirates’ cost of living ratio has exceeded the EM index threshold for two years in a row — and, if it does so for a third consecutive year, the country would no longer be eligible for the EMBI series, and will be reviewed for a removal from the index.

Investors would also be looking for a higher yield to invest in EM sovereign bonds, with the extra yield investors demand to own EM sovereign bonds set to widen by 11 bps. The bank’s index is tracked widely by those investing in treasures across the world, and the loss of both countries could potentially “increase the average risk in the asset class,” according to Bloomberg. In the EMBI Global Diversified grouping, Qatar and Kuwait hold a weight of 3.2% and 0.6%, respectively. With the potential exit of the UAE — which accounts for 4.1% — the collective exit of the three countries would lead to capital outflows from EMs, and would “narrow the opportunities for bond traders.”

“As investors we were waiting for this to happen,” Anders Faergemann, co-head of EM global fixed income at Pinebridge Investments told Bloomberg. “On paper, the investor base for Qatar and Kuwait will narrow by taking them out of the EM indices but we can still invest in both countries off benchmark.”

ALSO FROM THE REGION-

Adnoc Gas raises USD 2.8 bn in MENA’s largest equity offering year-to-date: Emirati state-owned energy giant Abu Dhabi National Oil (Adnoc) completed the sale of a 4% stake in subsidiary Adnoc Gas to institutional investors, raising USD 2.8 bn, according to a statement. The follow-on offering, which was priced at AED 3.40 per share, was 4.4x oversubscribed. This is the largest equity offering in the MENA region since Saudi Aramco’s USD 12.3 bn secondary share sale last June.

REMEMBER- Adnoc Gas raked in USD 2.5 bn in one of the region’s biggest IPOs in 2023.

ADVISORS- Our friends at EFG Hermes acted as (pdf) joint coordinator and bookrunner alongside BofA Securities, Citi, First Abu Dhabi Bank, HSBC, and International Securities.

MARKETS THIS MORNING-

Asian markets are mixed in early trading this morning — Japan’s Nikkei is down 1.2%, the Shanghai Composite is looking at gains of 0.5% and the Hang Seng is up 2.2%. Meanwhile, South Korea’s Kospi is flat.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% yesterday on turnover of SAR 5.3 bn. The index is up 2.2% YTD.

In the green: Miahona (+5.9%), Al Babtain (+4.2%) and SIDC (+4.2%).

In the red: Saudi Ceramics (-10%), Chubb (-9.5%) and Malath Ins. (-8.5%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.4% yesterday on turnover of SAR 36.4 mn. The index is down 0.6% YTD.

In the green: Amwaj International (+8.3%), Fadeco (+7.6%) and Paper Home (+6.7%).

In the red: Leaf (-7%), Leen Alkhair (-6.5%) and Enma Alrawabi (-6.4%).