OECD leading indicators continue to signal strength, not only in the US but also across many emerging markets outside China, underscoring the durability of the ongoing global expansion. At the corporate level, fundamental credit quality is on an upward trend: 2026 is set to be the second consecutive year with net upgrades in Emerging Market (EM) corporate credit ratings (J.P. Morgan & Bloomberg, September 2025). This ongoing improvement in balance sheet strength and disciplined financial management further reinforces investor confidence in the asset class. Meanwhile, macroeconomic risks – such as recent tariff wars – have thus far failed to exert a material adverse impact on global economic growth or risk appetite, with EM corporates showing impressive resilience in absorbing such shocks with GDP growth level estimated at 4.2% for 2025 and forecasted at 4% for 2026 by the World bank (World Bank Global Economic Prospects, January 2026).
These improvements in fundamentals have resulted in tighter spreads for EM corporate debt while remaining above their developed market counterparts. Yields also remain compelling due to persistently elevated risk-free rates with levels not seen since the global financial crisis. The attractive level of yields, in combination with stronger credit resilience, may increase the probability for investors to achieve solid breakeven profiles, offering a buffer against potential market volatility.
Looking ahead, the interest rate backdrop warrants careful tactical management of duration exposure. Two key risks to the outlook could have opposing effects on rates. On one hand, a sharp correction in sectors such as artificial intelligence equities or private credit could push risk appetite down, pulling global rates lower and leading to a rally in longer-duration high quality assets. On the other hand, if inflation prints higher than expected or if the Federal Reserve’s credibility is called into question by an excessively accommodative policy stance, rates could move higher and the curve could steepen. This dynamic environment necessitates an active approach to rate risk management.
In this context, outperformance is likely to be driven by the ability to capture idiosyncratic EM risk premia, especially given the unusually heavy and varied election calendar – including Peru, Colombia, Brazil, Thailand, India or Hungary – and expectations for increased credit dispersion in 2026. Careful credit selection and active portfolio management will be key as political and microeconomic developments within EM countries can create both risks and opportunities at the issuer level.
Finally, technical conditions should provide further support for the asset class. Net new supply of EM corporate hard currency debt is expected to remain limited (J.P. Morgan, January 2026). We also expect strong fund inflows driven by strong risk appetite, EM/DM growth differential and strong historical performance. Limited supply and strong funds inflows should together support valuations through the year.
In summary, supported by resilient growth, strong corporate balance sheets, attractive yields, and favourable technicals, EM corporate hard currency debt stands well positioned going into 2026. Nevertheless, prudent risk management and a focus on issuer selection will be crucial to successfully navigate the evolving risk landscape and to seize the opportunities the year has to offer.
-ends-
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