Global bond funds are set to become steady buyers of Saudi government debt. It comes as the kingdom borrows more to cover a widening budget gap.
J.P. Morgan said on Thursday that riyal-denominated government sukuk will join its emerging-market local-currency bond index (GBI-EM) from Jan. 29, 2027. They will be phased in over 10 months.
Eight sukuk worth about $79 billion qualify. Saudi Arabia will end up with a weight of 2.71%, higher than the 2.52% J.P. Morgan first flagged in April.
Why it matters
Funds that track the index have to buy what's in it. With about $233 billion following the GBI-EM, a 2.71% weight works out to more than $6 billion of Saudi debt, by CapitalSA's calculation.
More buyers usually means cheaper borrowing. The kingdom needs that, because the budget is heading past its deficit forecast again.
The bigger picture
Finance Minister Mohammed Al-Jadaan said in April that the move would bring more foreign investors and more trading into the local debt market. Bloomberg is adding the same sukuk to its own emerging-market index.
To make room, J.P. Morgan is cutting the maximum weight any one country can hold to 9%. China, India, Mexico, Malaysia and Indonesia lose some of their share.
