Biggest EM issuers carve out more of key bond indices
* JP Morgan to change widely-followed EM indices
* Changes will benefit bigger countries
* Smaller sovereigns likely to suffer
By Michael Turner
LONDON, Sept 15 (IFR) - Some of the most indebted emerging market borrowers are expected to see pockets of demand for their bonds soar almost overnight, after JP Morgan implements changes to the methodology of its widely-used indices.
The US bank will shift how much weight it gives to different issuers within key emerging market indices, with the rebalancing set to take place between September 30 and November 30.
Larger sovereigns with bigger index-eligible debt piles will now constitute a bigger slice of the index - at the cost of smaller countries.
This could have wide-ranging impacts on emerging market debt, as a bigger index presence will see more money flow into those bonds through passive funds, supporting secondary market prices and encouraging primary market issuance. The opposite is true of countries that see their positions in indices slashed.
"The effect is potentially quite sizable," said an emerging market bond trader. "Passive funds have to track the index, so if a weighting goes up, there will be overnight demand for that debt." Continuación...