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Jean-Charles Sambor

Market Outlook

EM Debt Outlook

Outlook
12 October 2025

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Head of Emerging Markets Debt

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Latest EM Debt economic and market outlook. 

We are modestly constructive on duration. The US curve remains relatively steep, and we believe most fiscal risks are already priced in. We continue to express duration tactically, but with an overall long bias. 

We have been overweight Venezuelan sovereign bonds over the past year on the view that the durability of the Maduro regime was materially overstated by markets and that the probability of regime change was underpriced. As at end of December, Venezuela’s benchmark weight was at 0.5% and our fund exposure stood at 3.3%.

On the 3rd of January, President Donald Trump announced that Nicolás Maduro and his wife had been extracted from the country during an early-morning operation that included air strikes on military targets in and around Caracas. Maduro has since been indicted on narco-terrorism and other charges and is now in US custody. In the immediate aftermath, Venezuela’s Supreme Constitutional Court declared that Delcy Rodríguez would serve as interim president, citing a forced temporary absence of the incumbent, with no timetable provided for elections.

At the time of writing, Venezuelan bonds have rallied by around nine points. In our assessment, this move reflects the early pricing of what we would describe as a constructive base-case scenario, namely political stability combined with gradual regime change and the potential for an eventual economic turnaround. Even so, we continue to see significant upside remaining in the trade.

Interest from investors has begun to re-emerge, and we believe we are among the funds with the most meaningful exposure to the country. This reflects extensive work on market structure, ongoing engagement with key stakeholders and contacts on the ground, and significant time and resources dedicated to this theme over the past year, including travel to Caracas to meet directly with relevant participants. The situation remains fluid, and we continue to monitor developments closely across Caracas, Washington and New York.

At the same time, we remain cautious on core EM sovereign spreads. Valuations are tight, and we believe there is scope for widening triggered by US markets, with spillover effects into EM. Whilst we acknowledge the argument that momentum is improving, we do not believe spreads are immune from external shocks. That said, we continue to see very compelling opportunities in high yield and special situations (such as Venezuela and Lebanon).

In FX, our current stance is biased toward long Asia FX and selective frontier currencies, including a small position in Uganda, while we have exited Ghana due to increasing crowding and deteriorating liquidity dynamics. We continue to be cautious on high carry currencies.

We continue to see increasing dispersion across EM rates markets. Rather than assuming one-way moves, we view divergent country outcomes as the dominant theme for 2026. In China, our structural view remains that inflation risk is binary and significantly underpriced, and our positioning reflects this asymmetric payoff.

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