Who is buying and why
JPMorgan Asset Management, Generali and Ninety One SA are leaning into emerging-market debt, a stance that shows up in steady inflows. Bank of America, citing EPFR Global figures, says EM bond funds have attracted money for 12 consecutive weeks.
BofA's latest survey also puts emerging-market equities among investors' top trades this month, and that preference has persisted even as most US yields have surpassed 5%. Speaking in London, Iain Stealey, JPM Asset Management's fixed-income chief investment officer, said, "I just don't think people own enough emerging markets," calling EM among the "most constructive allocations" across the $4.3 trillion firm's portfolios and saying the firm will "continue to see assets deployed there." He also expects more gains as "people are looking to find ways of getting, maybe, out of developed market governments." Emerging stock and bond gauges have outpaced developed-market peers this year.
Why some investors prefer EM now and how they value it
In past tightening cycles, rising Treasury yields and fears of a renewed European debt scare often knocked EM assets back. This time, investors are viewing dips linked to those forces as opportunities to build positions, and EM bonds have delivered almost four times the return of U.S. Treasuries since the beginning of last year.
A big reason: today's fixed-income jitters are centered on heavy debt loads and budget gaps in advanced economies, which are pushing up borrowing costs in the U.S., euro area and Japan. Many developing countries look sturdier on the fiscal front, helping explain why the extra yield over Treasuries that EM bondholders demand has barely moved this year even as U.S. bonds were sold.
Another change is how managers are valuing EM. At Ninety One Asset Management, co-chief investment officer Peter Kent, who oversees fixed income, said, "The one thing we've done well over the last 18 months is not use Treasuries as our valuation metric," and noted the firm has recently added EM debt exposure. "If you had, you would have stopped buying EM eight months ago, when spreads got quite tight."
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Generali Asset Management's Guillaume Tresca points to improving credit quality: "The global credit rating of EM countries is on the upward trend clearly. While on the other side, there have been many questions on developed-market countries, like France." UBS strategists add that average budget deficits are smaller in EM than in developed economies, and most EM governments have shifted more borrowing into local currency, reducing dollar exposure.
According to Milana Muratova at Aberdeen Investments, many EM central banks moved earlier and more forcefully against inflation, keeping real yields - interest rates after inflation - relatively high. That has helped EM bonds and currencies hold up even as the dollar strengthened. EM currencies are not immune to a stronger dollar, she said, "but it does underline an important point: domestic fundamentals increasingly matter."
Risks, stress points and where yield hunters are looking
The picture is not uniform. India has rolled out multiple exceptional measures to prop up its currency, and dollar funding rates have neared 10% in a number of nations - among them Mozambique, Sri Lanka and Ecuador.
At VanEck, Eric Fine, who leads active emerging markets debt, says local debt yields in India, the Philippines and Thailand are not compelling enough. He prefers riskier but higher-yielding dollar bonds from Venezuela, Ecuador, Bolivia, Nigeria and Ghana. And for Desmond Lawrence at State Street Global Advisors, EM's resilience this year also reflects more limited capacity to lever up than advanced economies, which helped restrain debt binges.
"The whole dynamic is changing," he said. EM debt "will be an asset that'll get you through the next few quarters. Its resilience has been remarkable."
What this means for your portfolio
EM debt is drawing steady inflows, investors are shifting toward country-by-country fundamentals, and many developing economies have strengthened policy frameworks and budgets. The flip side is clear too: currency interventions, higher dollar funding costs and uneven local yields mean dispersion is real across countries and instruments.
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