Philippines may draw $3 billion if added to JPMorgan bond index

THE PHILIPPINES may see inflows of about $3 billion if the nation’s government bonds are added to JPMorgan Chase & Co.’s benchmark emerging-market index this year, according to National Treasurer Sharon P. Almanza.

Manila will likely have an initial weight of about 1% on the index, Ms. Almanza said in an interview on Monday. That would translate to about $3 billion in foreign flows, she said.

An update on the Philippines’ status may come as early as March, Ms. Almanza said, with any changes to the index likely to take effect in October. If the country’s bonds fail to make the inclusion this round, it would mean another year of discussions, she said.

“We have to be optimistic,” Ms. Almanza said. “Those are real money investors, so definitely it will help our GS market,” she added, referring to government securities.

An executive from JPMorgan’s office in Manila didn’t immediately respond to a request for comment. JPMorgan did not respond to an e-mail sent outside working hours in New York.

JPMorgan last year placed the Philippines along with Saudi Arabia on the Index Watch for possible inclusion to its gauge, citing market reforms the two countries have implemented over the past three years. The index is followed by funds managing over $200 billion of assets, according to the Wall Street bank.

Being added to the JPMorgan gauge would help lower borrowing costs as demand for locally issued bonds would rise, according to Ms. Almanza. The Philippines, one of Asia’s most active sovereign bond issuers in overseas markets, can also issue more peso-denominated debt and rely less on foreign-currency borrowings.

Inclusion in JPMorgan’s index would help reinforce confidence in the economy, which has been pummeled by an ongoing corruption scandal involving the state’s flood mitigation infrastructure.

Some investors have started positioning in the country’s government bonds ahead of JPMorgan’s announcement, Ms. Almanza said. Last week’s sale of 10-year fixed-rate treasury bonds was nearly 11 times subscribed. She hopes to double the share of nonresident holdings in the domestic bond market from the current level of nearly 5%.

For its index inclusion bid, the government has implemented a host of measures, including strengthening its debt market with the issuance of large-sized bonds to boost liquidity, and streamlined its tax treaty procedure. The Philippines also revived its interest rate swaps market and allowed more participants in its bond repurchase agreements.

The Philippines is addressing one of the last remaining reforms in the market, which is to exclude the 20% withholding tax from the computation of the gross price of bonds. But that shift may only materialize next year, the treasurer said.

“It’s very complicated. It will impact bondholders’ accounting system and even their portfolios,” Ms. Almanza said. “We’re shaking the entire GS market.”

Bloomberg LP, the parent company of Bloomberg News, also offers index products for various asset classes through Bloomberg Index Services Ltd. — Bloomberg