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Jean-Charles Sambor

Market Outlook

EM Debt Outlook

Outlook
12 April 2026

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Head of Emerging Markets Debt

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The Iran conflict has understandably raised concerns around energy prices, global growth and broader risk sentiment. Our central scenario has been that there will be a de-escalation, given strong incentives on both sides to agree a ceasefire. We therefore used the market sell-off to increase duration risk, currency risk and – to a lesser degree – credit risk, particularly in dislocated markets like Dubai real estate, or oil importers such as Egypt, Sri Lanka and Pakistan.

The main alternative scenario is that the conflict becomes more protracted. However, in this eventuality, we believe the market will gradually shift from concerns over inflation toward fears over a global recession as demand collapses. In our view, investors have been overpricing the risk of rate hikes in most emerging markets. In many cases, key central banks may be slightly more careful in their rate cutting cycles, but will likely be even more concerned about the growth outlook, especially for those with dual mandates. Thus, in this scenario too, we see a weak US Dollar and an easing in global rates.

At the time of writing, the US has agreed a ceasefire with Iran and the additional risk that we took on during the sell-off has been rewarded. However, the ceasefire is extremely fragile and there could easily be a market pullback in the short-term. Consequently, we have significantly reduced risk following the market rally. For example, we exited positions that we had opened during the market dislocation, including Dubai real estate names Damac and Aldar. During the dislocation, we had also moved overweight certain oil importers, namely Sri Lanka, Pakistan and Egypt. These were taken back to neutral weight. We also reduced our long duration bias across US Dollar duration, as well as local currency debt and receivers (Brazil, Czech Republic, Poland and Korea). Many of our long EM FX positions were also cut, not only high-beta currencies such as ZAR, but also THB, KRW and PHP.  Finally, we slightly reduced Lebanon, although this is still a large, high-conviction position. 

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