In recent decades, emerging market debt has undergone a remarkable transformation. Tune in to our podcast to uncover why this dynamic asset class deserves your attention, and which segments our experts favour.
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Two decades of transformation have reshaped emerging market debt. The sovereign index now exceeds 70 constituents, double the number from two decades ago, boosting diversification, depth and liquidity. Economic stewardship across the developing world has improved markedly in parallel, with more independent central banks and more disciplined fiscal frameworks underpinning a fundamental re-rating of the asset class.
The improvements have gone beyond a cyclical recovery, with credit upgrades outpacing downgrades by a ratio of two to one. Performance has reflected this evolution, with strong returns in recent years, particularly in 2025, when fears about the impact of US tariffs proved, on balance, overstated.
While spreads are tight by historical standards, all-in yields remain attractive for investors. Frontier and local currency debt offer particularly elevated yields with surprisingly low volatility and low correlation, ideal when trying to maximise the carry to volatility ratio and ripe for active management to express a view. Taken together, these factors underpin our strong conviction on the sub-asset class.
