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JPMorgan adds sukuk to emerging markets indices
JPMorgan, which runs the most widely used benchmarks of emerging market debt, will include eight sukuk across its index family starting Oct. 31.
The decision was taken after JPMorgan conducted an annual governance review it said in a research report to clients.
Dollar-denominated sukuk from Turkey, Malaysia and Indonesia will be included in JPMorgan's flagship EMBI Global Diversified index, against which an estimated $313 billion in assets is benchmarked.
The move could help sukuk break away from their traditional buy-and-hold investor base.
"Despite having a market size of $200 billion, so far sukuk was seen as an exotic asset class mainly targeted at Islamic banks," said Okan Akin, emerging market credit analyst at AllianceBernstein in London.
The decision by JPMorgan would increase the liquidity of sukuk instruments, the lack of which has been the main negative feature of the market, Akin said.
Including sukuk into such benchmarks would attract higher bids and may support prices at higher levels, said Anita Yadav, head of fixed income research at Emirates NBD in Dubai.
"Non-traditional investors that generally hesitate to invest in sukuk may also be forced to buy should they be using JPMorgan as their performance benchmark," Yadav said.
Sukuk, which follow religious principles such as bans on interest and gambling, have their core centres in the Gulf region and Southeast Asia although the funding format has made inroads in Western markets in recent years.
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