Who decides what counts as an emerging market?

Saudi Arabia, with an income per head of $23,000, lavish public services and oodles of oil, have in common with Zambia, where incomes are 94% lower and the government is on the brink of default? Not much, on the face of it. But the two countries are lumped together, along with 71 others, in JPMorgan Chase’s definition of “emerging markets”.

In 2019 the bank added Gulf countries to its hard-currency government-bond index, after the oil-price crash of 2014 led to a rush of issuance. Places like Saudi Arabia and Qatar had been too rich to qualify, but the bank tweaked its rules to include them. It also slashed the weight on defaulted Venezuelan government bonds to 0% last year, instead of removing them altogether. That unprecedented move spared some bondholders from having to offload the debt, which is under American sanctions.

JPMorgan’s clients include both issuers and investors, potentially posing conflicts. Other parts of the bank have dealings in emerging markets. It won valuable deals to raise funds for Saudi Arabia’s mammoth oil firm, Aramco, months after the index group said the government’s debt was going into its benchmarks. The bank also has other interests in China’s bond market.

JPMorgan dismantled its advisory committees in 2015 in favour of individual conversations, in order to reach a wider group of investors. It says it strives to keep the playing field level, so nobody gets an early whiff of plans and front-runs the market. Still, small fund managers suspect their larger rivals have the index team’s ear and lobby for assets they own to be included.

First if all, a country must have freely transferable and tradable assets.

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