EMD Indicator
Emerging Market Debt Indicator – February 2026
Reflections on developments across the EM Debt investment universe in February, with an update on portfolio positioning in the context of the current conflict in the Middle East.
The fast view
- Emerging Market (EM) Corporate Debt market has become a lot more diversified — it now gives investors access to a broad range of opportunities, spanning sectors and covering regions as diverse as Latin America and the Middle East.
- Investors also now have a wide choice across the credit rating spectrum according to their risk appetite.
- The asset class offers investors an attractive way to source yield in today’s bond markets without introducing excessive additional risk to their portfolios. It also provides an opportunity to tap into the growth prospects of some major global businesses.
- We expect many EM companies to benefit from a strong improvement in global growth as the world’s economies recover from pandemic-related weakness, but there will be winners and losers, so a highly selective investment approach is vital.
- Among key trends, climate change is is creating transition risks for some industries, as well as opportunities for industries able to participate in decarbonisation. For an investor, a deep understanding of the risk and opportunities at an individual sector level will be vital.
Specific Risks
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Derivatives: The use of derivatives may increase overall risk by magnifying the effect of both gains and losses leading to large changes in value and potentially large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss.Interest rate: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates rise. Liquidity: There may be insufficient buyers or sellers of particular investments giving rise to delays in trading and being able to make settlements, and/or large fluctuations in value. This may lead to larger financial losses than might be anticipated.Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.
General Risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.
