2025 has been a good year for investors in emerging markets (EM). In an environment of geopolitical and macroeconomic unease, debt from this universe (EMD) has shown resilience: sovereign bonds denominated in both local currency and hard currency have posted double-digit gains year to date, and corporate debt has delivered an equally positive performance.
In this Q&A, Charles De Quinsonas and Carlos Carranza, from the Emerging Market Fixed Income Team at M&G Investments, share their perspectives on the drivers of returns in the region, the improvement in its fundamentals, and how M&G can capture opportunities in this evolving asset class.
What makes EMD an attractive asset class currently?
EMD is truly interesting right now. This segment already used to offer attractive yields to maturity (YTM), but in recent years its volatility has declined to levels much closer to those seen in developed markets. In addition to this significant change, we also see structural improvements such as lower debt-to-GDP ratios, credible monetary policies, and strong growth prospects. As a result, EMD has moved beyond being merely a tactical play and is becoming a strategic allocation for many investors.
What specific data point do you find most attractive at this moment?
In our opinion, the most notable metric right now is the real yield advantage. Many EM countries offer positive real yields, something uncommon in the developed universe. In Brazil, for example, the central bank chose to raise interest rates early and aggressively (well ahead of the U.S. Federal Reserve), allowing investors to obtain attractive real interest rates with inflation under control.
How is M&G positioned to take advantage of these opportunities?
Our EMD team applies a clearly bottom-up approach: we devote a great deal of time to the fundamental analysis of countries and issuers, combining quantitative models with qualitative insights with the aim of identifying inflection points and avoiding idiosyncratic risks. We analyze sovereign and corporate debt jointly, not as separate segments, and we use proprietary tools to determine their sustainability and assign internal ratings. Finally, we have one of the largest credit analysis teams in all of Europe, with more than 50 analysts with an average of 14 years of experience.
Do you see any individual country or sector as more promising than others?
In general, we like local currency bonds in Latin America, where countries with high real interest rates and strong fiscal discipline stand out, such as Brazil and Mexico. We also see many opportunities in Central Asia, in countries such as Uzbekistan, Kyrgyzstan, and Kazakhstan. As for corporate debt, EM companies with low leverage levels and high interest coverage appear attractive to us, especially considering that their spreads are wider than their fundamentals would justify.
How does M&G differentiate itself from other managers in this asset class?
We believe we do so in three areas: flexibility, depth of analysis, and experience. The absence of constraints in our strategy allows us to capture the team’s best ideas across sovereign, corporate, and local currency debt, and to do so in a very holistic way. Our analysis is truly bottom-up, focused on anticipating turning points and managing risk; this is one of the pillars of our activity, as we consider diversification and lack of concentration to be key elements of our investment philosophy.
What development do you believe will have the greatest impact on EM in the coming years?
There are several major themes. The first is the continued strengthening of monetary and fiscal frameworks in these regions, which could represent a decisive shift toward greater stability. The second is demographic trends: 85% of the world’s population lives in EM, and many of these countries have growing working-age populations, which can support long-term growth. Finally, a sustained rotation away from portfolios centered on the United States could occur, as investors question American exceptionalism and seek growth in other markets.
What is your outlook for EM fixed income markets?
EM debt inspires optimism in us. Carry is attractive, fundamentals are improving, and government policies have never been as credible as they are now. Hard currency bond spreads are appealing, although the investment-grade segment is beginning to look expensive. In our view, EMD offers income, growth, and diversification at a time when developed markets are facing increasing challenges. For investors seeking to build resilient portfolios, these bonds could be an interesting allocation.
The value of investments will fluctuate, causing the value of holdings to fall as well as rise. You may not recover the amount you originally invested. Past performance is not indicative of future performance. The views expressed in this document should not be taken as a recommendation, advice, or forecast.
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The views expressed represent the opinions of M&G Investments, which are subject to change and are not provided as investment advice, a recommendation, or a forecast or guarantee of future results. This information is provided for informational purposes only and is sourced from both proprietary and third-party sources whose accuracy or completeness has not been independently verified. Although M&G Investments believes the information to be accurate and reliable, it does not warrant or accept responsibility for its completeness, accuracy, or reliability. Statements concerning future expectations, estimates, projections, and other forward-looking statements are based on information available and the opinion of the managers at the time they are made. Accordingly, such statements are inherently speculative, as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual events, results, and returns may differ materially from those expressed or implied by such statements.
In the United States and Canada, this financial promotion is issued by M&G Investment Management Limited, registered in England and Wales under number 936683, with its registered office at 10 Fenchurch Avenue, London EC3M 5AG. M&G Investment Management Limited is authorized and regulated by the Financial Conduct Authority. Elsewhere, it is issued by M&G Luxembourg S.A., with its registered office at 16, Boulevard Royal, L-2449, Luxembourg. MAR 26 / 1701904
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