1. Untapped resilience
The investable EM fixed income universe spans some 89 countries, together accounting for 61% of global gross domestic product (GDP) and home to 88% of the world’s population. Known for their natural resources, they still generate almost two-thirds of all mineral productionSource: World Mining data. As at Dec 2023. Report published April 2025.. But they are also increasingly dominant in tech and innovation, with a 60% share of patents grantedSource: World population review, 2024.
In the past three decades, emerging markets have come a long way: implementing fiscal reform, establishing central bank independence, improving corporate governance, opening up their financial markets and developing domestic financing.
According to research, many EMs now rival their developed market peers in terms of quality of life, economic stability and – crucially for fixed income investors – creditworthiness.
EM sovereign debt levels average just 57% of GDP, compared to 128% for the Group of Seven developed nations (see chart), and their fiscal balance position is also much healthier.
This, in turn has led to a steady improvement in credit ratings – since the start of 2024, the major ratings agencies have between them delivered some 80 upgrades to member countries in the JP Morgan EMBI Global Diversified Index (EMBI)The J.P. Morgan EMBI Global Diversified Index (EMBIGD) tracks liquid, US Dollar emerging market fixed and floating-rate debt instruments issued by sovereign and quasi-sovereign entities . The index was launched in July 1999 with daily historical index levels dating back to December 1993. Historical to-maturity and to-worst statistics are available from December 1997 and December 2001, respectively., compared to just 30 downgrades.
Source: Pictet Asset Management, IMF, JP Morgan Index Research, Bloomberg as of December 2025. EMBI contains the constituents of the JP Morgan EMBI Global Diversified index.
The good news is we don’t believe this resilience is yet fully reflected in market pricing, creating an attractive investment opportunity.
Yields to worst on global emerging market bonds are on a par with those on US high yield, at around 6.93% despite much better credit quality (with an average credit rating of BB+/Ba1/BB+ compared to BB-/BA3/BB- for US high yield)Yield-to-worst for US corporate high yield index and JP Morgan EMBI Global Diversified index as of 05.28.2026. Pictet Asset Management, Bloomberg, JP Morgan Index Research..
Investors can thus capitalize on this excess risk premium.
2. Diversification benefits
The one undisputed lesson of recent years has been to expect the unexpected. From pandemics to politics, we have seen much turbulence.
In financial markets, such a volatile environment underscores the importance of diversification. But it also increases uncertainty, making some investors reluctant to move away from familiar territory and take on potential new risks – such as exposure to other currencies.
Low correlation without local currency exposure
EM hard currency bonds could be the answer. They offer low correlation to other fixed income asset classes – with monthly correlation of just 35% with US Treasuries, for example, over the past 25 years – while avoiding the need for direct EM currency exposure (see table).
| CORRELATIONS (MONTHLY) | EMERGING LOCAL GOV BONDS | ASIA LOCAL GOV BONDS | EMERGING LOCAL CURRENCIES (MONEY MARKETS) | EMERGING USD BONDS | EMERGING CORPORATE BONDS | COMMODITIES | US GOVERNMENT BONDS | INVESTMENT GRADE CORPORATE USD BONDS | GLOBAL HIGH YIELD USD BONDS | EMERGING EQUITIES | US EQUITIES |
| Emerging Local Gov Bonds | 1.00 | 0.83 | 0.93 | 0.79 | 0.69 | 0.49 | 0.21 | 0.51 | 0.58 | 0.79 | 0.56 |
| Asia Local Gov Bonds | 1.00 | 0.76 | 0.68 | 0.56 | 0.31 | 0.37 | 0.59 | 0.48 | 0.67 | 0.48 | |
| Emerging Local Currencies (Money Markets) | 1.00 | 0.70 | 0.61 | 0.54 | 0.11 | 0.41 | 0.56 | 0.82 | 0.59 | ||
| Emerging USD Bonds | 1.00 | 0.88 | 0.44 | 0.35 | 0.69 | 0.70 | 0.70 | 0.62 | |||
| Emerging Corporate Bonds | 1.00 | 0.46 | 0.29 | 0.68 | 0.70 | 0.62 | 0.52 | ||||
| Commodities | 1.00 | -0.12 | 0.12 | 0.42 | 0.56 | 0.41 | |||||
| US Government Bonds | 1.00 | 0.69 | -0.03 | -0.06 | -0.13 | ||||||
| Investment Grade Corporate USD Bonds | 1.00 | 0.53 | 0.37 | 0.33 | |||||||
| Global High Yield USD Bonds | 1.00 | 0.66 | 0.70 | ||||||||
| Emerging Equities | 1.00 | 0.73 | |||||||||
| US equities | 1.00 |
Note: All indices are total return. Benchmarks: JPM GBI-EM Global Diversified, JPM JADE Broad Diversified, JPM ELMI+, JPM EMBI Global Diversified, JPM CEMBI Broad Diversified, Bloomberg Commodities Total Return Index, JPM US Government Bond Index, JPM-JULI High Grade Corporate, JPM Global High Yield Index, MSCI Emerging Equities, S&P 500 Index. Annualized historical data: 12.31.2001 – 03.31. 2026. Past performance is not a guarantee or a reliable indicator of future performance. One cannot invest in an index as indices are unmanaged. Index returns do not reflect the effect of fee, expenses and taxes. Source: JP Morgan
3. Active edge
Within the EM fixed income universe, there is much variety, creating a particularly fertile ground for active investors to maximize returns and minimize risk. Unlike passive, index-tracking portfolios we can make full use of the diversity across regions, sector exposure and themes.
Faced with the recent oil price shock, for example, as active investors we were able to tilt our EM fixed income portfolio towards oil exporters, while reducing exposure to the hard-hit importers.
Similarly, last year, when geopolitical tensions escalated over global trade, we carried out in-depth analysis to determine which countries might be the most impacted – not just those subjected to the largest tariffs, but ones whose economies were the most exposed to the levies. Again, this enabled us to adjust our portfolio, improving returns and reducing volatility relative to passive EM fixed income allocations.
By their nature, fixed income indices are weighted towards the biggest issuers – which is not always a sign of strength in bond markets. When a country faces problems, index investors therefore tend to be disproportionately exposed to the downfall and are unable to fully capitalize on any recovery until the country’s weighting in the index recovers.
In contrast, as active investors, we can omit some countries; everything we own is intentional.
So, for example, our EM fixed income ETF currently has zero exposure to Venezuela and has only a tiny allocation to Lebanon (of well under 1%); in contrast, our strategies were overweight on both issuers throughout 2025, unlocking the benefits of sizeable appreciation in these markets during the year (Venezuela returns in the JP Morgan EMBI Global Diversified index were 98.54% in 2025, Lebanon returned 78.48%)JP Morgan Index Research (EMBI Monitor December 2025)..
No longer the junior to developed peers, emerging markets fixed income has graduated. It offers investors untapped resilience, attractive valuations and proven diversification benefits, with an active approach key to maximizing risk-adjusted returns.
-
G7
G7 or Group of Seven, is a group of seven of the world’s richest and most powerful countries—Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. They meet regularly to talk about and work together on important global issues like the economy, security, and climate change. The European Union also takes part in their meetings, but it isn’t an official member.
-
GDP
GDP, or Gross Domestic Product, is the total value of all goods and services produced within a country over a certain period (like a year or a quarter). It’s a way to measure how big and healthy a country’s economy is—basically, it shows how much money a country makes from everything it produces.
-
Yield to worst (YTW)
Yield to worst (YTW) is the lowest possible yield an investor can receive on a bond without the issuer actually defaulting. It is calculated by looking at all possible call or redemption dates before the bond’s maturity and figuring out which one would give the investor the lowest yield. This helps investors understand the minimum return they might get if the bond is paid off early by the issuer.
-
JPM GBI-EM Global Diversified: a benchmark for emerging-market government bonds issued in local currencies. It tracks investable sovereign debt from a broad set of emerging markets, while using diversification rules that cap country weights. JPM JADE Broad Diversified: a benchmark for local-currency government bonds in Asia, excluding Japan, built to give broad regional exposure while limiting concentration in any one country.
-
JPM ELMI+
JPM ELMI+: a benchmark that tracks total returns on local-currency-denominated money market instruments in emerging markets.
-
JPM EMBI Global Diversified
JPM EMBI Global Diversified: a benchmark for emerging-market sovereign bonds issued in hard currency, mainly U.S. dollars, with diversification caps that reduce the weight of the biggest debtor countries.
-
JPM CEMBI Broad Diversified
JPM CEMBI Broad Diversified: a benchmark for U.S.-dollar-denominated corporate bonds issued by emerging-market companies, with diversification rules that limit concentration in the largest issuers.
-
JPM US Government Bond Index
JPM US Government Bond Index: a benchmark that tracks liquid, fixed-rate, USD-denominated U.S. Treasury bonds.
-
JPM-JULI High Grade Corporate
JPM-JULI High Grade Corporate: a benchmark that measures the performance of the most liquid, investment-grade, U.S. dollar-denominated corporate bonds.
-
JPM Global High Yield Index
JPM Global High Yield Index: a benchmark tracking fixed-income securities from domestic and foreign issuers with a maximum credit rating of BB+/Ba1.
-
MSCI Emerging Markets Index
MSCI Emerging Markets Index: a stock-market benchmark that tracks large- and mid-cap companies in emerging market countries, using free-float-adjusted market capitalization weighting.
-
S&P 500 Index
S&P 500 Index: a stock market benchmark tracking the stock performance of 500 leading companies listed on stock exchanges in the United States.
-
Bloomberg Commodities Total Return Index
Bloomberg Commodities Total Return Index: a commodity benchmark based on the return of a diversified basket of commodity futures. It not only captures commodity price movements but also takes into account the return from cash collateral invested in 13-week U.S. Treasury bills.
