JPMorgan launches Corporate Emerging Markets Bond index

By Jennifer Chiou

New York, Nov. 8 - JPMorgan Chase & Co. added to its fixed-income indexes with the introduction of its new Corporate Emerging Markets Bond index.

The index is a global, liquid corporate emerging markets benchmark that tracks dollar-denominated corporate bonds from emerging markets issuers.

"We created the Cembi in response to the rapid increase of corporate issuance and the need for a diligently managed global corporate index," said Gloria M. Kim, head of JPMorgan's global bond index group.

"It continues a legacy of premier index products developed by JPMorgan and underscores the firm's dedication to developing emerging markets."

One key feature of the index is the liquidity of the underlying basket.

According to JPMorgan, the Corporate Emerging Markets Bond index is a liquid basket of emerging markets corporate issues, which include about 80 bonds, representing 60 issuers and 16 countries as of Oct. 31.

The index has strict liquidity criteria for inclusion in order to provide replicability, tradability, robust pricing and data integrity.

The country requirements include that it be low- or middle-income for five consecutive years. Eligible countries must be non-OECD, or Organisation for Economic Co-operation and Development, for five straight years.

The issue requirements include that they must be dollar-denominated and with a face amount greater than or equal to $500 million as well a maturity of greater that five years and, once in the index, three years.

The New York-based financial services firm said that the index is the first in a series of corporate emerging markets indexes that it plans to introduce.

The launch also includes the first hybrid index in the JPMorgan emerging markets fixed-income family - the Corporate Emerging Markets Bond index Hybrid, or Cembi Hybrid, which integrates corporates and sovereigns, and incorporates the new Corporate Emerging Markets Bond index and the widely used EMBI Global.

The Cembi Broad, which JPMorgan said it plans to launch in coming months, will be more comprehensive and will include smaller issues to cover a wider array of corporate bonds. The minimum amount outstanding required will likely be $350 million, compared to $500 million for the replicable and tradable Corporate Emerging Markets Bond index.

The company said that annual external debt issuance from emerging market corporates has risen to $115 billion in 2006 from $21 billion in 2002, and has already exceeded $140 billion this year.

"This market is growing rapidly and generating significant interest from investors, both from traditional emerging market funds and from dedicated corporate credit investors that may be entering emerging markets for the first time," said Victoria Miles, co-head of emerging markets corporate credit research at JPMorgan.

Index breakdown

By country (as of Oct. 31) Cembi Cembi Diversified

Asia 40.84 42.12

China 3.10 4.32

Hong Kong 16.77 14.32

India 2.23 3.11

Malaysia 3.67 5.12

Singapore 13.61 13.19

Taiwan 1.47 2.05

Europe 28.59 23.95

Kazakstan 4.81 6.26

Russia 22.99 16.59

Ukraine 0.79 1.10

Latin America 28.41 30.92

Brazil 14.68 13.86

Colombia 1.22 1.70

Jamaica 1.46 2.04

Mexico 9.38 10.98

Peru 1.67 2.33

Middle East 1.03 1.44

Israel 1.03 1.44

Africa 1.12 1.57

Egypt 1.12 1.57

By sector Cembi Cembi Diversified

Banks 26.77 27.90

Industrials 27.44 27.70

Oil 16.27 13.25

Retail 0.89 0.84

Telecom 14.95 16.40

Utilities 3.26 4.55

Metals 10.42 9.36

Rating buckets Cembi Cembi Diversified

Investment grade 84.60 83.13

Non investment grade 15.40 16.87

BB 11.95 12.42

B 1.99 2.41

Residual 1.46 2.04

Cembi Returns

Cumulative 68.11%

YTD (October) 4.12%

2006 6.63%

2005 6.62%

2004 9.77%

2003 11.88%

2002 15.64%

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