Resetting the narrative on emerging market equities
Emerging market equities are outperforming developed markets for the first time in years and many believe this could mark the start of a long-term structural shift.
Chapters
01
Market background02
Top-down views and outlook03
Africa04
Asia05
Latin America06
Central and Eastern Europe, Middle East and South Africa07
EM corporate highlights01
Market background
A better month for the US dollar held back local currency markets, but an improvement in risk appetite boosted hard currency debt – particularly high-yield markets.
Performance across the emerging market (EM) fixed income asset class was mixed in July. The US dollar strengthened meaningfully, resulting in a weaker month for EM currencies. In contrast, EM sovereign and corporate hard currency debt benefited from improved sentiment, with an easing of trade concerns helping credit spreads to tighten across these markets.
US Treasury yields rose, reflecting stronger data on the health of the US economy and hawkish comments from the US Federal Reserve. As a result, the market dialled back its expectations of rate cuts over the rest of 2025.
The local currency debt market (JPMorgan GBI-EM GD) declined by 0.8% in US dollar terms, with the negative impact of the stronger US dollar outweighing positive performance (+0.8%) of the local rates market. Latin American currencies, including the Chilean peso and Brazilian real, were notable weak spots, while Uruguay's local debt market rallied after an unexpected rate cut.
The sovereign hard currency market (JPMorgan EMBI GD) delivered a positive return of 1.3%. Credit spreads tightened meaningfully over the month, particularly in high-yield markets, thanks to the improved sentiment towards risk assets. Africa's high-yield markets had a strong month, with Senegal's hard currency debt rallying back after progress on the misreporting debt case. Credit spreads also tightened in the investment-grade market, although the rise in US Treasury yields dampened total returns there.
General risks. The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Specific risks. 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.
