Emerging Market Investor Diary | November 2025

Authors

Priyank Shah

Senior Investment Specialist, Emerging Markets Debt

Executive Summary

Emerging markets enter 2026 from a position of strength: GDP ~4% vs. ~2% in the US, driven by domestic demand, capex and supply chain shifts — a ~200bp growth premium.
Resilient policy backdrop: strong macro frameworks and room for further cuts. Over 15 central banks have cut rates in 2025, amid cooling inflation and a 7–8% USD depreciation — a rare mix of easing with FX stability.
Improving credit quality: 2025 saw the best credit rating upgrade cycle in a decade and no sovereign defaults, narrowing EM–DM credit quality gaps.
Income remains the differentiator: EM debt yields ~7–8%, a ~300bp premium to global benchmarks. Since 2010, income has accounted for >80% of EMD total returns.
Flows recovering but allocations lag: YTD inflows of US$16.7bn, yet institutional exposure to EMD is still low (~2% of global fixed income versus ~2.5% pre COVID).
Reform-driven spread tightening into 2026: fiscal and structural reforms in Türkiye, Egypt, Nigeria, Argentina, Ghana and Côte d’Ivoire support spread compression and upgrades; elections in Brazil, Chile, Peru and Colombia create idiosyncratic opportunities.

Bottom Line

Emerging Market Debt (EMD) is entering 2026 with credible policy anchors, higher real yields, and stronger credit profiles. The next phase of the global easing cycle should favour returns from higher-income opportunities, alpha driven by spread tightening from credit-reform stories, and differentiation between winners and losers —conditions that support strategic allocation to EMD as a core fixed-income asset class.

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Emerging Markets

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