Rethinking emerging market credit: A missing piece in global portfolios

In today’s volatile macro environment, investors have become increasingly risk-aware. US credit markets, particularly Treasuries and corporate bonds, are widely regarded as safe havens, while emerging markets (EM) are often perceived as inherently risky.

But is this perception still valid?

US Treasuries remain a cornerstone of global portfolios and continue to serve as a reliable safe haven. However, evolving macro conditions such as higher interest rates and policy uncertainty have highlighted the risks of over-concentration in a single market.

Emerging markets, by contrast, are now in a cyclically strong position, having moved past their post-Covid defaults – a challenge that remains prevalent in developed market credit. Far from being defined by volatility and political risk, they have shown resilience, outperforming developed markets during this turmoil.

Year-to-date, in the EM bond market, corporates have outperformed global high yield and global investment grade, offering higher returns for similar or better credit ratings. EM debt has exhibited less volatility than US high yield, while offering more yield and wider spreads than investment grade, making it a strong diversifier in a global credit portfolio.

Earnings growth further supports EM’s structural appeal. EM companies are expected to post double-digit earnings growth through 2026, outpacing both the US and broader developed markets. This strong outlook highlights the growing maturity of many emerging market economies.

A common misconception is to view emerging markets as a single, uniform block. In reality, EM is one of the most diverse investment universes. Regional growth drivers differ significantly: India and ASEAN benefit from strong domestic demand and digitalization, while Latin America is more cyclical, with exposure to commodities and attractive real yields. EMEA markets, meanwhile, are shaped by geopolitical dynamics and reform pathways.

Robeco’s global credit team has been investing in emerging markets for decades, navigating multiple market cycles. In our view, the current opportunity set is particularly compelling in selected areas where fundamentals remain resilient yet yields appear attractive.

For example, we have been adding exposure to copper mining companies in Chile, as the sector is well positioned to benefit from strong structural demand driven by the electrification of economies. Copper is a key input in power grids, renewable energy, and electric vehicles, all of which require significantly higher copper intensity than traditional systems. In addition, we have increased exposure to a Mexican utility with a strong renewable footprint, as well as a gas pipeline operator in Mexico, in line with our preference for companies with hard assets and low obsolescence risk.

In such a diverse universe, disciplined credit research and active positioning remain key to unlocking value while managing risk.

In a changing world, “safety” is no longer defined by a single market or asset class. Instead, it is achieved through thoughtful diversification across regions and credit segments. Emerging market credit may now represent a valuable and underappreciated component of a well-constructed global portfolio.