JPMorgan Chase & Co. has recently announced the launch of a new Asia-Pacific bond index, which is set to reduce China’s weighting in its benchmark indexes while moving some countries like South Korea and India higher up the weighting list. The move signals JPMorgan’s response to the increasing geopolitical tension between China and other Asian countries, with some investors favoring a shift away from Chinese debt amidst rising risk perception. In this blog post, we’ll explore what this new Asia-Pacific bond index could mean for investors looking to diversify their portfolios and manage risk.

JPMorgan Introduces New Asia Bond Index

jpmorgan introduces new asia bond index
With reduced China weighting

JPMorgan Asset Management has announced the launch of its Asia Bond Index (ABI) series, which will include a new ABI with reduced China weighting.

The ABI series is designed to provide a comprehensive and investable benchmark for the Asian bond market. It covers both sovereign and corporate bonds denominated in local currencies and issued by issuers in 11 markets: China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

The new ABI with reduced China weighting will have 27%China/23%Hong Kong/16%Japan/9%India/6%Indonesia weighting compared to the current ABI’s 34%China/21%Hong Kong/17%Japan/8%India/5%Indonesia weighting. This reduction comes as a result of asset managers’ increased focus on other markets in Asia and reflects the growing importance of these markets in the global bond market.

The ABI series is available in both USD- and JPY-denominated versions and is updated daily.

Why China’s Weighting Was Reduced

China’s weighting in the new Asia Bond Index was reduced due to concerns about the country’s slowing economy and rising debt levels. China now makes up 28% of the index, down from 34%.

The decision to reduce China’s weighting was made by a committee of JPMorgan analysts and strategists. They cited concerns about the country’s slowing economy and its increasing debt levels as key factors in their decision.

China is the world’s second-largest economy, but it has been facing headwinds in recent years. GDP growth slowed to 6.7% in 2016, its weakest pace in 26 years. And debt levels have been rising, with total government debt reaching 247% of GDP at the end of 2017, up from 212% a year earlier.

The decision to reduce China’s weighting reflects these concerns and is likely to result in increased volatility in the index. But it also reflects JPMorgan’s belief that China will continue to play a significant role in the Asian bond market, despite these challenges.

What the New Index Includes

The new JPMorgan Asia Bond Index (JABi) will include bonds from eight Asian economies – China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore and Thailand. The index will be based on the Bloomberg Barclays Global Aggregate Index methodology and will have a reduced weighting for Chinese bonds.

The JABi will provide investors with a more diversified exposure to the Asian bond markets and help them to better manage their portfolios. The reduced weighting for Chinese bonds in the JABi is in line with JPMorgans’ view that the country’s debt market has become increasingly risky and that other Asian markets offer better value.

The JABi is expected to be launched in early 2018.

How the New Index Differs from Other Asian Bond Indices

The new Asia Bond Index from JPMorgan Chase & Co. (NYSE: JPM) has a lower weighting for China than other Asian bond indices, reflecting the country’s slowing economy and rising debt levels. The index includes bonds from ten Asian countries, with the weights of each country based on its share of outstanding regional government debt.

China’s weighting in the new index is 28%, down from 34% in other Asian bond indices. This reflects concerns about the country’s slowing growth and rising debt levels, which could lead to defaults or restructurings. The reduced weighting means that investors in the new index will have less exposure to Chinese bonds than in other indexes.

The new index also has a higher weighting for Japanese government bonds (JGBs) than other Asian bond indices. This is because JGBs are seen as a relatively safe investment at a time when there are concerns about the stability of Chinese bonds. The increased weighting of JGBs makes the new index more conservative than other Asian bond indices.

The weights of the other countries in the new index are unchanged from their weights in other Asian bond indices.

Conclusion

JPMorgan’s introduction of a new Asia bond index with reduced China weighting is an important step forward for the regional financial markets. By providing investors with more options and greater diversification, this move should help to increase liquidity in the region and facilitate capital flows between countries. This could lead to higher returns for individual investors as well as institutional ones, making it an overall win-win situation.