The inclusion of Saudi Arabian bonds in the JP Morgan Government Bond Index–Emerging Markets (GBI‑EM) could materially change the market’s liquidity profile, but traders should beware of overestimating and/or mistiming the effect.
Saudi Arabia was placed on the watchlist for the index in September 2025. At the time The Saudi Exchange published an announcement welcoming the potential inclusion, which prior to the war in Iran, was suggested as being possible within six to nine months. .
“Upon inclusion in the index, Saudi Arabia is projected to attract approximately SAR 18.75 billion (US$ 5 billion) in initial foreign inflows, reinforcing the depth, liquidity, and attractiveness of the Saudi sukuk and debt capital market,” it wrote.
That inflow would constitute 3% of the value of sukuk and debt traded on the Saudi Exchange it reported in 2024, and would be the most direct effect, as forced and discretionary inflows come from global asset managers, who track or benchmark against these indices. It could meaningfully deepen trading activity, in addition to broadening the investor base, which increases the potential for more two-way markets.
That said, indexation is not a given with joining contingent upon several factors, The market had its rating upgraded to A+ by S&P Global in March 2025, which is highly supportive.
“We project that Saudi Arabia’s net government asset position will reduce to a still-high 32% of GDP in 2028, from around 55% estimated in 2023,” the rating agency wrote at the time. “We forecast gross general government debt (excluding pension fund GOSI’s holdings) rising gradually to about 36% of GDP in 2028, from 25% in 2024.”
However, increased secondary market activity is also key and creates a potential chicken and egg scenario, somewhat undermined by the typical investor profile.
“Bonds must trade with enough frequency to prevent stale price quotations,” notes the criteria for the JPM GBI-EM index. “Bonds must be regularly traded in size at acceptable bid-offer spreads and readily redeemable for cash. A reasonable two-way market must exist for the instrument to be included in the index portfolio. Investors should be able to replicate the index without incurring excessive transaction costs.”
This could be a challenge. Sukuk instruments are sharia-compliant bonds which function with an underlying-linked payout replacing the interest-bearing coupon component and are typically acquired by buy-and-hold investors. This in itself limits the level of secondary market activity and liquidity.
Traders might expect a virtuous circle of indexation deepening volumes, creating data points around pricing and liquidity, therefore supporting better price formation and electronification. This in turn could increase accessibility by allowing electronic market makers to trade between exchange-traded funds tracking the index and the cash bonds to support immediate price formation.
However, assuming that the change will be linear or instant would be flawed. If we look at the effects of indexation upon the Indian bond market this becomes apparent.
Indian government bonds were included in the GB-EMI in 2024 and the Bloomberg Emerging Market (EM) Local Currency Government Index from January 2025. Within Asian emerging markets, India makes up an average of 22% of the FICC pool according to Crisil Coalition Greenwich numbers, second only to China, with 42% of the pie, and ahead of Hong Kong, with 8%.
Trading volume increased to US$186 billion in 2024 up from US$169 billion in 2023, while US$126 billion was traded in the first five months of 2025 alone.
The estimated weight of Saudi bonds, if included, would be about 2.2% across seven bonds, according to State Street Investment Management, lower than the 9-10% which India made up on EM indexes.
When factored in with investor behaviour around Sukuk debt, it seems likely that liquidity will not be significantly impacted by indexation, initially.
Over the longer term, lower borrowing costs from increased demand and tighter spreads will reduce sovereign and corporate funding costs, leading to a more liquid market as sovereign and corporate issuers are encouraged to tap markets more frequently.
With more diverse participants and higher turnover lead to more efficient pricing and reduced volatility, the market sees lower costs of liquidity and potentially becomes more attractive for derivatives, repo markets, and hedging instruments.
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