JP Morgan To Propose New Credit Index For Asia

As per two sources, JPMorgan is proposing a new Asia credit index with a lower China weighting, in addition to its existing $85 billion Asia credit index, in response to rising geopolitical tensions and a waning appetite for Chinese property bonds.

According to one person with direct knowledge of the matter, JPMorgan has proposed that China's weighting in the new index be reduced to close to 30%, down from about 43% in the existing JPMorgan Asia credit index (JACI), of which China is the largest component.

The proposal comes at a time when Washington and Beijing are at odds over issues ranging from the Russia-Ukraine war and suspected Chinese spy balloons to tit-for-tat trade friction and technological rivalry – tensions that have unsettled investors.

Many large global money managers are avoiding Chinese assets, missing out on the country's post-COVID stock market rally, in the latest instance of strategic concerns trump juicy returns.

According to a proposal shared with investors in January and reviewed by sources, as well as the second source and two other people, the move comes after JPMorgan initially proposed expanding the existing JACI, but with China weighting cut to 29.86% from 43.144% now.

The Asia credit market would have been impacted if the originally proposed reshuffle to the existing index had gone through, with passive and active fund managers dumping China debt to stay aligned with the weighting change, according to the first source.

JPMorgan describes the new index, named JACI Asia Pacific, as an "enhanced" version of JACI with added exposure to more Asia-Pacific markets such as Japan, Australia, New Zealand and Papua New Guinea, the source said. JACI is a premier Asia credit index, tracked by fund managers controlling more than $85 billion worth of assets, according to the January proposal.

Chinese issuers' debt will remain the largest chunk of the new index, followed by Japan at 20 per cent and Australia at around 10 per cent, according to the source.

The proposal to reduce China weighting came after some fund managers pushed JPMorgan to cut JACI's China debt exposure, two sources said, as its poor performance dragged down the popularity of the passive products that track the index.