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Jean-Charles Sambor

Market Outlook

Q3 EM Debt Outlook

Outlook
12 October 2026

By

Head of Emerging Markets Debt

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Latest EM Debt economic and market outlook. 

We believe that the sell-off is overdone. Following the Fed rate hike, we saw a good opportunity to increase USD duration as well as local duration through our local rates positions in Poland, Czech Republic, Brazil, Colombia and Mexico. Indeed, higher rates will likely begin to act as a headwind to growth, and we therefore expect inflation fears to subside and oil prices to stabilise. However, we do not expect the Fed's tightening cycle to derail EM risk appetite.

Sovereign credit

We continue to have overweights in Venezuela and Lebanon, although we have been reducing both positions. Lebanon continues to rally and, whilst we are still very positive on the outlook, we felt it was prudent to trim this large position. Conversely, we remain underweight Ukraine and Argentina.

Corporate credit

We continue to see strong opportunities in selective Chinese distressed credit and Ukrainian corporates. Many Ukrainian businesses have been able to improve their cashflows and keep their liquidity profiles under control. The market continues to reprice the probability of a messy restructuring for these corporates, which have healthy fundamentals in our view.

FX

Following strong returns across KRW, JPY and HUF, we reduced our FX overweights materially compared to the summer months as we saw better opportunities in rates. However, we then increased our FX positioning again towards the end of September, given the opportunities presented by a pick up in volatility.

Local rates

Volatile markets have also offered compelling tactical rates opportunities, both on the payers and receivers sides. We have rebuilt large receiver positions in Poland and Czech Republic. Against this, we retain payer positions in HUF, CNY and THB. We have also continued to rotate our frontier book away from some African names, where complacency appears to be creeping in, pivoting towards Asian markets such as Pakistan, where the share of foreign participation is around 1%. Following a research trip to Sao Paulo, we gained more comfort about a favourable Brazilian election outcome - both for FX and rates - and accordingly increased our receiver position. Finally, the rise in US Treasury yields created opportunities to add duration in Colombia and Mexico, where local yields moved higher in sympathy. Colombian rates have repriced significantly since the election and now imply a less dovish policy path than we believe is likely. In Mexico, domestic conditions continue to support monetary easing, but local rates have been pulled higher by their close correlation with US Treasuries.

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