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- In our view, the tight valuations are largely justified considering how the asset class has successfully navigated both the covid inflationary burst and the resultant prolonged period of tight global monetary policy, while experiencing minimal defaults.
- From a debt, budgetary and external position perspective, a number of core and frontier EM economies have seen material improvements recently. According to Bank of America Merrill Lynch, almost three-quarters (73%) of new EM ratings actions in 2024 moved in a positive direction, compared to the near-total spate of downgrades (93%) witnessed in 2020.
- Despite the increased geopolitical risks, including an unpredictable new US administration and anemic growth in China, we believe a combination of frontier and core EM countries have the potential to outperform in 2025. As examples, we examine a diverse range of fundamentals presenting in Argentina, El Salvador, Pakistan, Sri Lanka and Turkey.
EMD report Q1 2025
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