Roundtable 'Emerging Market Debt'

June 8, 2026

    

Chair: Sander van der Steeg, Mint Tower Capital Management Participants: Benoit Anne, MFS Investment Management Dustin Benson, Nuveen Kristin Ceva, Payden & Rygel Rob Drijkoningen, Neuberger Mohammed Elmi, Federated Hermes Rodica Glavan, BNY Investments Yong Lin, Achmea Investment Management Naki Nartey, PIMCO Rickey Thevakarrunai, bfinance

   

The debate surrounding emerging market debt is shifting. Investors are no longer asking themselves whether they should invest in EMD, but how: which countries and sectors are preferable, how to deal with volatility and market shocks, and what role themes such as AI and ESG should play in portfolio construction.

These and other key questions are the focus of a round-table discussion organised by Financial Investigator, in which nine experts discuss the investment case for this asset class. The participants highlight where opportunities lie, but also where assumptions about EMD are no longer tenable. Risk is a recurring theme in the discussion.

The persistently high perception of risk remains one of the biggest obstacles, concludes moderator Sander van der Steeg. ‘That sentiment flared up again during the crisis in the Middle East, even though the quality of the asset class has clearly improved.

What role does EMD currently play in the investment portfolios of institutional investors?

Benoit Anne: ‘That role has clearly changed. The category has proven to be an excellent tool for global diversification. Emerging markets used to be the epitome of a high-beta asset class, but that image no longer holds true. The category is less volatile and plays a strategic role in an increasing number of portfolios within diversification and low-correlation strategies. The narrative surrounding emerging markets has simply become less negative. There are now greater concerns about the sustainability of US government debt and political instability in Europe.’

Naki Nartey: ‘Retail investors often view emerging markets as a tactical position, but for institutional investors it has now become a structural long-term allocation. Moreover, market timing within a tactical approach is also particularly difficult. Investors who attempt this often end up with poorer returns than long-term investors.’

Rickey Thevakarrunai: ‘Interest in EMD has increased. One of the main drivers is valuation. If you look at the spreads, emerging market debt is more attractive than, for example, corporate bonds in developed markets. There is also a clear diversification benefit, as emerging markets are less closely aligned with the economic cycle of developed markets. This provides better diversification within bond portfolios.’

Rob Drijkoningen: ‘We saw a clear trend of renewed inflows into EMD before the conflict in the Middle East. Now, many investors are adopting a more wait-and-see approach again. Emerging markets are a cyclical asset class – this applies particularly to local currency – and are sensitive to global trade, growth and inflation dynamics. Other investors, however, see volatility as an opportunity.’

Rodica Glavan: ‘We are seeing growing interest, for the time being mainly from global mandates, but no very strong inflows. We are, however, seeing a shift from tactical to structural allocations.’

Is the Wtp framework changing how pension funds view EMD? Is it a reason for larger allocations?

Yong Lin: ‘The return module within the WTP framework is aimed at maximising returns within a given risk budget, and EMD fits in well with that. EMD offers higher risk premiums than developed markets and, compared to high yield, has historically had a relatively favourable default and recovery profile. In addition, the diversification benefits improve the Sharpe ratio at portfolio level. The final allocation depends on the risk budget, lifecycle choices and liquidity requirements.’

Kristin Ceva: ‘Many institutional investors have plenty of scope to increase their allocation. Emerging markets account for almost 50% of global GDP, whilst EMD represents just over 20% of the global fixed-income market. Inflows improved last year, but this followed a period of significant outflows. The outlook remains favourable: strong fundamentals, improved inflation dynamics, resilient growth and stronger external balances.’

How do you address the high risk perception of the asset class?

Mohammed Elmi: ‘With bonds, it essentially comes down to default risk. In 2024 and 2025, we saw no defaults whatsoever in EM sovereigns denominated in hard currency, compared with around 2.5% in US high yield. This reflects stronger fiscal positions, lower debt levels and improved monetary policy frameworks. Emerging markets are distinguished by much stronger balance sheet positions. Volatility remains, but periods of weakness often present buying opportunities.’

Glavan: ‘We see a similar picture with corporate bonds. Default rates peaked in 2022, driven by the Chinese property market and the war in Ukraine, but have since fallen below the long-term average, and well below that of European high yield. More than half of the EM corporate universe is now held by local investors with a longer-term horizon. This provides greater stability and lower volatility.’

Dustin Benson: ‘The fundamentals are stronger than ever and EMD is much more diversified. Both the corporate and sovereign universes are broader, with varied exposures to commodities and economic growth. Liquidity is often seen as a weakness, but the market has become considerably deeper. There is a broad investor base with many more active local players. Even during recent geopolitical tensions, liquidity remained intact.’

Nartey: ‘We are actually seeing a convergence where balance sheets in developed markets are deteriorating and those in emerging markets are improving. Furthermore, you can build your exposure to EMD selectively – via an active manager – and you do not need to invest across the entire universe. The perception that emerging markets are inherently very risky is not sufficiently substantiated.’
 

Retail investors often view emerging markets as a tactical position, but for institutional investors it has now become a structural long-term allocation.

 
Drijkoningen: ‘An important point is the strength of local reform programmes, which are actually being embraced by national governments this time. Countries such as Oman and Azerbaijan are shifting from high yield to investment grade, and there is a pipeline of countries that could follow. This suggests that the underlying credit quality of a number of countries may already be stronger than the ratings indicate.’

Thevakarrunai: ‘The main benchmark, the EMBI Global Diversified, consists of approximately 50% investment grade and 50% high yield, but offers spreads comparable to US high yield. Investors therefore get comparable spreads with a higher average credit quality.’

Lin: ‘An environment of geopolitical fragmentation, structurally higher inflation and persistent policy uncertainty is putting pressure on securities in developed markets, including so-called safe-haven assets. In that context, EMD looks attractive. In our base case scenario, we expect this category to offer a more favourable risk-return profile than both equities and high-yield bonds in developed markets. Not having an EM allocation is a risk in itself.’

We have seen significant volatility as a result of conflicts and shifts in global supply chains. How does this affect the appeal of EMD?

Drijkoningen: ‘To the extent that these developments influence expectations for global growth, they also affect the willingness to finance emerging markets. When shocks occur, investors tend to fixate on the immediate impact and react short-sightedly. But even with major events, such as the Russian invasion of Ukraine, effects are usually priced in within a few weeks, after which risk premiums adjust and fundamentals and economic incentives regain importance.’

Ceva: ‘I agree with that long-term view, but in the short term, every shock creates clear winners and losers. Markets reacted rationally to the conflict in the Middle East by distinguishing between oil importers and oil exporters. At the same time, geopolitical dynamics are shifting now that the US is playing a more active role in the Middle East and Latin America. This has a direct impact on markets and underlines the importance of approaching EM on a country-by-country basis, rather than as a single bloc.’

Elmi: ‘Don’t lose sight of the structural narrative. Emerging markets are benefiting from stronger demographics, higher growth and a growing middle class. We are also seeing more intra-market trade, which increases resilience. This makes EMD more resilient to global shocks.’

Anne: ‘We focus on fundamentals and maintain a high-quality bias. This is how we navigate volatility. At the same time, the category is benefiting from the current commodities climate. It’s not just about oil: countries with gold and other metals are also benefiting from strong trade dynamics.’

Nartey: ‘We are positive on a number of commodity-producing countries, but do not believe that all importers will be negatively affected. Some oil importers, such as Turkey, are actually in a strong position, with significantly improved reserves and support from their gold exposure. We also see opportunities in countries with steep yield curves that export other commodities, such as metals, including South Africa and Brazil.’
 

If you look at the spreads, EMD is more attractive than, for example, corporate bonds in developed markets.

 
Benson: ‘Markets are increasingly news-driven, whilst underlying changes, such as the reconfiguration of supply chains or the impact of foreign investment, take years to filter through. This creates a gap between perception and reality. Market prices can be erratic, but it is important to keep an eye on those underlying changes. Distinguishing between such signals and daily noise is becoming increasingly important.’

How should investors incorporate AI into their EMD investment approach?

Drijkoningen: ‘Emerging markets are relatively well-positioned to benefit from the commodities-driven aspect of AI growth. In the medium term, however, there are challenges: AI requires a high level of education, infrastructure and investment capacity, and the dynamics are likely to be a winner-takes-all scenario.’

Glavan: ‘Many investors associate AI with the US, but a large part of the physical backbone lies in emerging markets, through metals, mining and the production and assembly of hardware. At the same time, some countries are positioning themselves as AI hubs, such as the United Arab Emirates, Saudi Arabia and India. Emerging markets no longer merely supply the ‘picks and shovels’ for the AI gold rush, but are gradually moving up the value chain.’

Ceva: ‘We are already seeing the impact of AI in the trade dynamics of countries such as China, Taiwan, South Korea and Malaysia, which are benefiting from exports of semiconductors and hardware for the construction of data centres in the US. On the other hand, there may be negative effects for countries where AI disrupts service-oriented export models.’
 

We expect EMD to offer a more favourable risk-return profile than both equities and high-yield bonds in developed markets.

 
Thevakarrunai: ‘There may be clear winners and losers, depending on a variety of factors. Some countries will benefit from the increased demand for raw materials for the construction and maintenance of AI infrastructure, whilst other countries with more service-oriented economies may actually be negatively affected by new AI technology. This underlines the importance of active management in identifying the winners. As the divergence between countries increases, this will only become more important.’

What are the drivers of returns for the coming period and where do the investment opportunities lie in EMD?

Anne: ‘A market pullback, driven by geopolitical tensions, could present a tactical opportunity to rebuild positions, as entry levels become more attractive. At the same time, spreads are generally quite tight. Not just in EM, but across the global fixed-income market. In such an environment, alpha becomes more important, requiring a stronger focus on selection and fundamental analysis. You select strong sovereign credits and avoid the weaker names.’

Nartey: ‘Macro-positioning remains important – we make macro-calls – but there are many ways to generate alpha through bond selection. Moreover, market views can be interpreted in various ways.’

Elmi: ‘Country allocation will, broadly speaking, deliver benchmark-like returns, whilst alpha is more likely to come from bottom-up bond selection. Returns this year are likely to be driven to a significant extent by the high-income segment. With EMBI yields around 7%, the carry component is significant, which, combined with selective positioning, particularly in frontier markets, can lead to an attractive total return.’

How do you assess allocations to hard currency, local currency and possibly also corporate bonds in light of the macroeconomic cycle? Are there any favourites?

Lin: ‘We do not employ tactical allocation, but in the longer term we prefer hard currency, due to the high carry premium and its favourable diversification properties. In the short term, local currencies offer added value relative to hard currency. This is linked to tight spreads in hard currency and a macro environment in which a weakening US dollar supports local currencies in particular.’
 

The key driver of returns remains making the right country selections. Look beyond the benchmark and focus on where fundamentals are improving.

 
Ceva: ‘Spreads are tight across the board, so within sovereign credit we favour segments with higher yields, where there is more spread buffer and idiosyncratic upside potential. At the same time, local currency bonds offer attractive diversification and cyclical tailwinds, with attractive real yields and steeper curves in countries such as Mexico, South Africa and Peru.’

Drijkoningen: ‘The relative performance of hard and local currencies is driven by US Treasuries, the dollar and commodities. Although credit spreads are tight, real interest rates are at historically high levels, in both developed and emerging markets. This supports local currencies in the medium term, given the higher real risk premiums and the relative undervaluation of many currencies.’

Benson: ‘We are positive on EM government bonds, particularly in countries with improving fundamentals such as Argentina. In sub-Saharan Africa, we see opportunities in countries with favourable terms of trade and evolving inflation frameworks, which are less in sync with the broader EM cycle. We are underweight in high-quality names such as the United Arab Emirates and the Philippines, where valuations offer limited upside potential.’

Elmi: ‘We see strong opportunities in frontier markets that offer a combination of high carry and price potential. Countries such as Zambia stand out, thanks to structural reforms, commodity dynamics and improving sustainability. Countries such as Pakistan and Sri Lanka have taken a hit, but may offer attractive entry points. High-quality looks less attractive and parts of the mid-beta segment, such as double-B bonds, are relatively expensive.’

Glavan: ‘We prefer Latin America and parts of Africa, and remain underweight in Asia, particularly in corporate bonds, where relative value is limited. By sector, we are focusing on metals and mining, which are benefiting from the commodities cycle.’

There has been an increase in the use of ETFs. Does that have an impact on investing in EM?

Nartey: ‘If ETFs attract more investors to the EMD segment, that is positive. Passive ETFs can also create opportunities for active managers. For instance, participating in a new issue at an early stage can generate value for active managers: once that bond is subsequently included in the benchmark, the ensuing demand from passive investors can support the valuation when the bond is included in the index.’
 

Emerging markets no longer merely provide the ‘picks and shovels’ for the AI gold rush, but are gradually moving up the value chain.

 
Benson: ‘ETFs are fairly broad in their selection, which can present opportunities. They can create demand for credits that do not fundamentally justify it, or conversely sell good credits without a convincing underlying story. This leads to misalignments that can be exploited through country or security selection.’

Ceva: ‘ETFs have not performed particularly well in EM. Active managers have generally been able to outperform, partly because transaction costs in EMD are high.’

Are there legitimate concerns about liquidity in EMD?

Thevakarrunai: ‘Broadly speaking, liquidity has improved as there are more issues in sovereign, corporate and local markets. However, in high-yield frontier segments, liquidity can still evaporate quickly during periods of stress. Egypt is a recent example where policy changes caused a sharp market move and made it difficult for investors to reduce their positions. Therefore, choose managers who can manage such liquidity risks.’
 

Even in the event of major geopolitical events, securities are usually priced in within a few weeks.

 
Ceva: ‘The least liquid part of the market usually consists of smaller, single-B corporate issues. But overall, liquidity in EMD is better than in many alternative asset classes, such as private markets.’

Glavan: ‘Liquidity is relative. The EM universe is larger and often features larger issues than US high yield. With government bonds, you see that ETFs actually improve liquidity, although they can also add volatility. That is one of the reasons why government bonds are generally more liquid: there are fewer ETFs active in corporate bonds.’

Spreads are historically quite tight. To what extent is active management then still actually based on active credit selection? Shouldn’t you focus more on beta?

Drijkoningen: ‘The question is how you define beta: as leveraged market exposure, or as the result of active country selection. If a manager can deploy beta dynamically, in both rising and falling markets, that can contribute to alpha generation. A higher beta can be justified on the basis of improving fundamentals in many higher-yielding countries.’

Anne: ‘Broadly speaking, I agree with that, but we generally prefer high quality and a lower beta. That still offers sufficient scope for active positioning.’
 

Markets are increasingly news-driven, whilst underlying changes take years to filter through. That creates a gap between perception and reality.

 
Nartey: ‘We too have that quality bias. If you compare issuers from developed and emerging markets with the same credit rating, the default rates from AAA down to single-B are roughly comparable. The differences arise in the triple-C bucket and below, where defaults occur more frequently in emerging markets than in developed markets. That is why we are very selective in this segment. In benchmark-conscious portfolios, we also keep the beta within a range, typically between 0.9 and 1.1.’

Ceva: ‘The key driver of returns remains making the right country selections. Look beyond the benchmark and focus on where fundamentals are improving.’

Benson: ‘We are a bottom-up, fundamentally driven firm. Ultimately, you want to own the bonds you genuinely want to own. Our trading team, our analysts and our portfolio managers work closely together to determine whether market movements are driven by positioning, sentiment or structural factors. It is important to act quickly when opportunities arise.’

Elmi: ‘With a robust risk budgeting framework, you can manage volatility. For frontier or higher-yielding names, where alpha is often found, strict controls are needed on position size, stop losses and risk metrics. In EM, where trading volumes can shift rapidly, that discipline is essential.’

Glavan: ‘A good starting point is to measure risk correctly, not only through spread-duration metrics but also by looking at the volatility of specific bonds, sectors and countries. With limits for segments, regions and sectors, you can avoid excessive concentration. Diversification remains your most important protection.’

What role should a local-currency EMD portfolio play within a broader investment portfolio?

Thevakarrunai: ‘Many investors opt for blended mandates with the flexibility to invest in both hard currency and local currency. The question is whether you should always hold local currency or only when valuations are attractive. The segment is highly volatile, and the period after 2010 was challenging due to the strong dollar. Investing in local currency means you have to be able to accept that volatility.’

Anne: ‘Local currency EMD is indeed a separate category. Whilst EMD as a whole justifies a strategic allocation, local currency often requires a more tactical approach due to the influence of the dollar cycle. We are bearish on the US dollar, which supports the outlook for local debt, despite the current volatility in the segment. However, it is not a one-way asset class. You need to separate the interest rate view from the currency view, and ideally you want both views to be supportive. At present, parts of Latin America offer that combination.’
 

A market pullback, driven by geopolitical tensions, could present a tactical opportunity to rebuild positions, as entry levels become more attractive.

 
Drijkoningen: ‘Don’t view local currency solely from a dollar perspective, but take a broader view. From a euro perspective, volatility is significantly lower and the Sharpe ratio higher. Local currency bonds offer significant diversification benefits. The Chinese segment, in particular, has provided investors with strong diversification at crucial moments.’

Lin: ‘Local currency essentially fulfils three roles. Firstly, as a source of returns thanks to attractive real interest rates in markets such as Brazil and Indonesia. Secondly, as a diversifier thanks to local interest rate cycles that move structurally differently from developed markets. Thirdly, local currency provides currency diversification, with potential for appreciation in the long term. This combination of returns, risk diversification and currency exposure is not easy to replicate.’

Is there still significant interest in ESG or impact within EMD?

Lin: ‘ESG does not determine how much we allocate to emerging markets. Once EMD is part of the portfolio, we expect far-reaching ESG integration. On the impact side, we focus on contribution and additionality, among other things. With bonds in public markets, that effect is usually limited, for example with oversubscribed government green bonds. Interest in impact in EM is often still limited, although the potential impact per euro invested is generally higher than in developed markets.’

Thevakarrunai: ‘A sensible ESG approach is to take a country’s stage of development into account. Poorer countries need more leeway, whilst ESG requirements rightly become stricter as countries develop further.’
 

Without good governance, it is unlikely that environmental and social outcomes will improve.

 
Glavan: ‘Interest in ESG and impact waned slightly last year, but is now picking up again, particularly among continental European investors. This is partly driven by regulatory developments. At the same time, investors are becoming more selective about what qualifies as a truly sustainable or impact-oriented approach.’

Elmi: ‘An approach based purely on exclusion quickly limits the universe. That is why we prefer a more active ESG framework, with governance as the starting point. Without good governance, it is unlikely that environmental and social outcomes will improve. If the G is moving in the right direction, you can then assess the E and S. This ensures a fairer approach, particularly for countries with lower income levels.’
  

SUMMARY EMD is increasingly becoming a structural component of portfolios, focused on returns and diversification. The debate is shifting from whether one should invest in EMD to how best to invest in EMD. Risk perception remains high, whilst fundamentals and default rates have actually improved. Geopolitical shocks are causing volatility, but also offer entry opportunities in EMD. AI and geopolitics are widening the differences between countries and reinforcing the importance of active management. Returns are increasingly derived from selection and carry, now that spreads are historically tight. Local currency offers diversification and potential for returns, but does require acceptance of higher volatility. Emerging markets call for a different, more contextual ESG approach.

  

Sander van der Steeg Sander van der Steeg has been working as a Portfolio Manager at Mint Tower Capital Management since January 2026, where he is responsible for investments in emerging markets fixed income. Prior to that, he spent 10 years at Shell Asset Management Company, where his most recent role was Head of the in-house managed EMD mandate. Van der Steeg began his career at APG Asset Management.

  

Benoit Anne Benoit Anne is Senior Managing Director and Head of Market Insights at MFS Investment Management, where he leads the market insights team and focuses on fixed-income strategy. He joined the firm in 2021 and is based in London. Previously, he worked at Liberty Mutual, Société Générale and Merrill Lynch. He worked as an economist at both the Institute of International Finance and the International Monetary Fund.

  

Dustin Benson Dustin Benson is a Trader within Nuveen’s global fixed income team and has been a member of the international EMD team since 2011, where he is responsible for non-US credit markets, interest rates and currencies. Previously, he worked as an Analyst and Portfolio Manager for emerging markets and was employed at Black River Asset Management. He has been trading in emerging markets since 2002.

  

Kristin Ceva Kristin Ceva is Managing Director at Payden & Rygel, a member of the Investment Policy Committee and Senior Portfolio Manager for emerging markets bond strategies. She regularly speaks at forums and in the media on the subject of international investment. Ceva holds a PhD in Political Science from Stanford and was a Fulbright Scholar in Mexico. She sits on the boards of several non-profit organisations and holds a BBA in Finance from Texas A&M.

  

Rob Drijkoningen Rob Drijkoningen, Managing Director, joined Neuberger in 2013. He is Head of Fixed Income Europe and Co-Head of the EMD team. Prior to this, Drijkoningen spent almost 18 years at ING Investment Management, where his roles included Global Head of EMD and Head of Multi-Assets. He began his career at Nomura and Goldman Sachs and studied Macroeconomics at Erasmus University Rotterdam.

  

Mohammed Elmi Mohammed Elmi is a Senior Portfolio Manager and is responsible for portfolio management and research within global fixed income. He is Co-Portfolio Manager of the EMD franchise at Federated Hermes, where he has worked since 2013, and has 25 years’ investment experience. Previously, he held positions at Société Générale, Credit Suisse, Mashreq Capital and Bloomberg. Elmi holds a bachelor’s and master’s degree from the University of London.

  

Rodica Glavan Rodica Glavan is Head of Corporate Fixed Income for emerging markets at Insight and Lead Portfolio Manager for EM corporate bond strategies. She has been with Insight since 2006, having previously held roles at Schroders in London and New York. She holds a BBA in Economics and Finance (University of Alaska Anchorage) and an Investment Management Certificate (CFA UK). She speaks four languages.

  

Yong Lin Yong Lin is a Portfolio Manager at Achmea Investment Management, where he has been responsible for the selection and monitoring of external asset managers for fixed-income portfolios since 2015. Prior to that, he worked for over five years at FactSet Research Systems, where he specialised in analytical and quantitative products for the Benelux region. Lin obtained his Master’s degree in Finance and Investments from Erasmus University Rotterdam.

  

Naki Nartey Naki Nartey is Senior Vice President and Product Strategist for emerging markets at PIMCO. She previously worked in institutional fixed income sales at BBVA, where she managed the sale of European bonds to North American clients. Prior to that, she was an Emerging Markets Product Specialist at JPMorgan Private Bank in New York and held positions in investment sales at JPMorgan Private Bank in Geneva and JPMorgan Investment Bank in London.

  

Rickey Thevakarrunai Rickey Thevakarrunai joined bfinance in May 2023 as a Director within the public markets team. Prior to that, he spent 10 years at Aberdeen as a Senior Investment Analyst, responsible for selecting managers for fixed-income, equity and multi-asset funds. Before that, he was an Associate at PIMCO, focusing on portfolio and attribution analysis. Thevakarrunai holds a BSc in Economics from the University of Nottingham.

 

Read the full article in Financial Investigator magazine