Ukraine within six months could be included in J.P. Morgan GBI-EM index
J.P. Morgan has placed Ukraine and Egypt on the Index Watch Positive list for possible inclusion in the J.P. Morgan Government Bond Index - Emerging Markets (GBI-EM) index following sustained improvement in liquidity and foreign investor access to domestic government bond markets.
"An update to the Watch will be provided over the next six months to further indicate their potential status in the index," J.P. Morgan said on Friday.
According to the company, the share of Ukraine in the GBI-EM Global Diversified (GBI-EM GD) series may be about 0.12%. So far, the possibility of including only one issue of domestic government bonds in the indices is being considered – UAH 41.08 billion securities maturing in February 2025 (ISIN: UA4000204150) (equivalent to $1.468 billion) with a current market value of UAH 46.475 billion and with a yield of 12.35%. Only it meets the criteria for the minimum outstanding amount (over $1 billion) and maturity (more than two and a half years). Ukraine will also be considered for inclusion in the "narrow" GBI-EM indices, which include securities without regulatory or tax impediments.
The share of Ukraine in JESG GBI-EM may also be 0.12%, GBI-EM Div – 0.22% and GBI-AGG Div. – 0.02%.
The possible share of 14 Egyptian bonds in GBI-EM GD is estimated at 1.8%.
J.P. Morgan said that the inclusion of high yield bonds from Egypt and Ukraine will increase the GBI-EM GD index rate from 4.99% to 5.07%.
According to the materials, Ukraine is making constant efforts to increase liquidity in the domestic government bond market and is committed to building a benchmark yield curve by concentrating issues in favor of benchmark bonds. In addition, the government also adopted a resolution to expand the range of primary dealers, which was previously limited only to banks. As a result of these and other efforts, the share of nonresidents in the government bonds market increased from 1% ($0.2 billion) to 11.4% ($3.6 billion).
J.P. Morgan said that the issue of three-five-year government domestic loan bonds may help Ukraine increase its share in the indices, since longer bonds are unpopular with domestic participants, and without them it is difficult to create a liquid market.
As for liquidity of the secondary market it is said to have improved markedly over the past few years. According to the National Bank of Ukraine, the average monthly trading volume in hryvnia government bonds increased three times – from $0.2 billion in 2018 to $0.7 billion in 2020. This was also helped by the overall increase in debt from UAH 618 billion ($22 billion) in December 2018 to UAH 892 billion ($32 billion) today.