It looks as though local markets are slowly making the transition from flavour of the month to full-fledged asset class. In mid-June, JPMorgan launched a suite of new products, called the GBI-EM (Government Bond Index – Emerging Markets) that will provide a benchmark for local-currency debt.
JPMorgan has long had the EMBI (Emerging Market Bond Index) and its cognates – indices that follow emerging-market debt denominated in dollars or euros. It's also had a GBI for developed market government bonds. There was an obvious gap, and one that has increasingly needed to be filled as large real-money bond investors move more of their funds into local markets.
The move into local bond markets has been accelerated by dollar weakness and low interest rates on dollar-denominated spread product. But even if dollar bond yields start backing up again, local markets are likely to remain an important source of diversification – as well as providing an opportunity for capital gains.
"The investor community has taken an interest in a global local market index since last year," says Gloria Kim, manager of JPMorgan's index products. Her new product shows such interest is justified: local instruments have outperformed dollar bonds on a risk-adjusted basis since 2001, when JPMorgan's data begins.