The inclusion of five Gulf Cooperation Council (GCC) countries as of January 2019 into the benchmark EMBIG index represents one of the largest one-time index adjustments in recent memory. By the time the GCC countries are fully phased into the benchmark later this year, they will collectively account for about a 12% weighting, from virtually zero. Inclusion of these countries will increase the overall credit quality of the benchmark, lower its yield, and increase its exposure to oil price fluctuations. We use this as an opportunity to remind readers of our country risk process, highlighting some of the unique characteristics of these countries, how they fit into our relative valuation framework, and what this important market development means for our external debt portfolios.
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