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Saudi Arabia was added to JPMorgan’s EMBI Global Diversified Index for its dollar denominated bonds in 2019. Image Credit: REUTERS

Riyadh: JPMorgan Chase & Co. is considering adding Saudi Arabia’s local-currency bonds to its benchmark emerging-market index, according to people familiar with the matter, a move that would help the kingdom attract more foreign portfolio investment and fund huge projects to diversify from oil.

The Wall Street bank has placed Saudi Arabia under review for inclusion into the Government Bond Index-Emerging Markets, a suite of indexes tracked by roughly $236 billion of funds.

The kingdom is keen to join and its regulators are working to make sure the bonds are eligible for inclusion, said the people, who asked not to be identified because the matter is confidential.

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JPMorgan and the Saudi Tadawul exchange declined to comment.

Saudi Arabia is spending hundreds of billions of dollars on a diversification drive championed by Crown Prince Mohammed bin Salman and dubbed Vision 2030. While part of that will be funded by oil revenue, the government also needs to attract more foreign investment and borrow.

The country is investing in everything from new cities to tourism resorts and electric vehicles. On Wednesday, it said it planned to bid for the men’s football World Cup in 2034.

Stock - Saudi riyal / Saudi economy
The potential inclusion could boost the liquidity of Saudi government securities and attract more passive funds, which often track indexes such as JPMorgan’s. That would be a welcome boost for the kingdom.

China has the biggest weighting in the GBI-EM indexes. Other countries include Brazil, Malaysia, Mexico, Poland, South Africa and Turkey. Last month, JPMorgan announced that India would gain entry in June next year.

The India move will see it attract $40 billion of inflows, Goldman Sachs Group Inc. estimates.

The chairman of the Saudi Capital Market Authority, Mohammed A. El-Kuwaiz, said last month there are several developments coming that “we expect are likely to stimulate the debt market even further.”

The US bank has created a Saudi-only local debt benchmark index - known as the “JPMorgan Saudi Arabia sukuk bonds unhedged LOC” - to help investors track the performance of the kingdom’s securities. That’s a step toward joining the emerging-markets indexes, said the people. It would also help authorities measure the performance of local asset managers, including pension funds.

Saudi Arabia was added to JPMorgan’s EMBI Global Diversified Index for its dollar denominated bonds in 2019. Moody’s Investors Service rates its foreign debt as A1, the fifth-highest rating, with a positive outlook.

This week, the Finance Ministry rewrote its budget forecast for next year, saying it expects a deficit instead of a surplus as it ramps up spending and as the government cuts oil production to help boost prices.

The $1.1 trillion economy will narrowly avoid a contraction this year, according to the government forecasts.