- 24 July 2026
Emerging market debt has shown resilience despite repeat geopolitical shocks and a changing world order....
The Worst Is Likely Behind for Emerging Markets
- PROFESSIONAL INVESTORS
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- 27.02.23
Despite a confluence of unprecedented shocks, emerging markets (EM) have shown resilience, with few signs of a broad-based crisis. As an asset class, EM appears to be positioned for stronger performance.
High EM real – or inflation-adjusted – rates buffer the spillover risks from further U.S. Federal Reserve (Fed) interest rate hikes and the effects of the strong U.S. dollar. China's economic reopening provides a tailwind, and the peaks in inflation and fiscal pressures appear to have passed.
Structural forces such as deepening local markets and nearshoring support EM fundamentals. The magnitude of last year's EM fund outflows suggests the asset class is now both structurally and cyclically under-owned, while EM valuations screen as historically cheap, in our view.
As a result, we are becoming increasingly positive on EM more broadly and select EM local debt in particular. Still, we remain cautious until the outlook for monetary policy becomes clearer, as much depends on the Fed's ability to tame inflation and China's ability to reactivate economic activity.
