JPMorgan excludes UAE from EMBI Index: phased exit by 2026, 4.1% weight faces passive fund reallocation

On February 25, JPMorgan announced it will remove the United Arab Emirates from its core emerging market bond index system, including adjustments to benchmarks such as the EMBI Global Diversified Index. Currently, the UAE accounts for approximately 4.1% of the relevant indices. The adjustment will begin on March 31, 2026, and will be phased in four stages to gradually reduce its weight, with full removal expected by June 30, 2026.

The main reason for this adjustment is that the UAE has exceeded the emerging market income threshold for three consecutive years, qualifying for the “income graduation” mechanism. Benefiting from high oil and gas revenues, tourism growth, and economic diversification, the UAE’s macro fundamentals continue to improve. Its sovereign credit rating has also risen to the AA range, gradually aligning with developed economies. Previously, Qatar and Kuwait also experienced similar index adjustments due to economic maturity.

According to the plan, newly issued UAE bonds will no longer be eligible for inclusion, and existing bonds will automatically exit the index as their weights decrease in stages. This phased approach aims to minimize the impact of the index adjustment on the global bond market and provide asset managers, passive funds, and ETFs with sufficient rebalancing windows to reduce forced selling pressure.

Because hundreds of billions of dollars are anchored to JPMorgan’s emerging market bond benchmark, the removal from the index may cause short-term capital outflows and slight widening of spreads. However, the market generally expects that a gradual adjustment will keep volatility manageable. In the long term, after exiting the emerging market index label, UAE sovereign bonds are likely to attract more allocations from developed markets, enhancing their appeal in international asset allocation and potentially supporting financing costs. This reclassification of the index also indicates that global bond index structures are continuously evolving in response to economic income upgrades.