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JP Morgan Say 50-60% of Non-Resident Inflows into Local Bonds Attributable to Index Inclusion

INDIA
  • JP Morgan say non-resident inflows into local bond markets have been sizeable over recent months ($8.8bln since 31 Oct), placing them amongst the largest across EM. They estimate that of these inflows, around 50-60% have been as a direct result of the upcoming index inclusion into the JP Morgan GBI-EM suite of indices in June.
  • JP Morgan retain a relatively constructive outlook on local assets, however, their preference remains to express this via FX rather than local bonds for now. While the domestic story for local bonds is compelling (fiscal consolidation, improved demand backdrop from index inclusion and contained inflation profile), the scope for capital appreciation is still somewhat limited, in their view.
  • That said, JPM say they would look for potential opportunities to engage in long bond positions, especially if any shift in the liquidity backdrop were to lead to another fall in FX forwards.
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