Increasing Interest In GCC And Shari'a Indices Reflects Shifting Bond Market; Region Still Underrepresented By Global Indices

Fisch Asset Management and S&P Dow Jones Indices today addressed the GCC’s shifting Fixed Income index landscape, at a seminar hosted by the Gulf Bond and Sukuk Association (GBSA). The Zurich-based asset manager and the global benchmark provider highlighted historic and emerging index trends, along with their impact on GCC and broader EM bond markets.

Despite growth in region-specific indices, GCC and EM have mostly been underrepresented by international benchmarks, although this underrepresentation was recently mitigated by the announcement that the GCC would be included in JP Morgan’s widely followed Emerging Market Bond Index (EMBI), with a substantial weighting that may reach 12%. Global index representation is therefore improving, with Saudi Arabia alone expected to represent 1.5% of the S&P Emerging BMI at 50% inclusion and 2.9% at 100% inclusion. Since the first Sukuk index was launched in 2006, the Middle East has also benefitted from the emergence of region-specific Shari’a and Sukuk indices, country indices and sector-focused indices.

Michael Grifferty, President of the Gulf Bond and Sukuk Association, commented:

“The region’s debt capital market is rapidly evolving, and indices play a significant role in the investment universe, acting as both signal and benchmark for the investment community. Today’s discussion addressed the importance of an improving index landscape for the GCC, demonstrating the commitment of our members to advancing the sophistication of Fixed Income markets in the Gulf, and how to make the region better represented to global investors.”

Commenting on index trends, Martin Haycock, Senior Partner at Fisch Asset Management, said:

“Traditional global corporate bond benchmarks have featured biases that limited exposure to growth areas such as EM and High Yield. To address these gaps, new indices can focus on greater diversification to more accurately represent the global corporate universe, moving away from an excessive concentration on developed markets such as North America. A more diversified benchmark better mirrors our own investment philosophy, in which we seek to maximize the opportunities presented by all regions, including the GCC. Meanwhile, convertible bond indices have for 25 years served to measure the unique risk/return characteristics of this asset class which has performed especially well historically in times of rising US dollar rates. We have welcomed the opportunity to share our insights in this area.”

Charbel Azzi, Head of Middle East, Africa and CIS at S&P Dow Jones Indices, concluded:

As the MENA fund industry continues to evolve, market participants are seeking transparent solutions to manage risk while generating growth and income in a volatile environment. This has led the increased demand for innovative indices, namely factor and multi-asset class indices to underlie funds. We are seeing a strong demand for our indices and we are proud to be in a position to meet this demand effectively.

The seminar, titled ‘The GCC’s shifting index landscape: what does it mean for issuers and investors?’ was hosted by GBSA at the Dubai International Financial Centre. The event was presented in partnership with Fisch Asset Management and S&P Dow Jones Indices, and attended by GBSA members who included institutional investors, asset managers, debt capital market advisors, issuers and Fixed Income service providers.