April Review:

• Emerging markets delivered strong performance in April, with geopolitical tensions surrounding Iran dominating market narratives. A naval blockade of Iranian ports and closure of the Strait of Hormuz triggered significant disruption to global commodity flows, yet risk appetite remained resilient across developed and emerging markets alike. The geopolitical shock sent oil prices higher, WTI crude up to $105, Brent up to $114, reflecting immediate supply concerns. Treasury yields and real yields adjusted as inflation expectations shifted upward in response to energy pressures, whilst the US dollar weakened 1.6% despite the geopolitical uncertainty. EM dynamics proved highly dependent on energy exposure. China stabilised with primary home sales rising 3% year on year and solar exports doubling to record highs, supporting EM investment grade spreads which tightened to record lows of approximately 5bps. However, energy importers faced headwinds, the Indian rupee hit record lows amid surging crude and foreign portfolio outflows, the Thai baht weakened, and Sri Lankan inflation exceeded targets as fuel costs rippled through the economy. In contrast, Colombia and other Latin American energy exporters benefited from the oil price shock.

• EM credit markets delivered positive returns, with corporates returning +1.73% and sovereigns, +2.86%, predominantly driven by higher yielding assets. Spreads tightened by 30bps for corporates and 41bps for sovereigns. Within corporates, the Real Estate, TMT and Pulp & Paper sectors outperformed with no notable detractors over the period. In sovereigns, Africa, Latin America, and Europe contributed the most. Local markets also delivered positive returns over the month, with the index returning +2.77% for the month. This was driven by positive performance in both FX and Rates, which returned +1.59% and +1.17% respectively. At the country level, Hungary, Brazil and South Africa contributed to returns over the period. However, Indonesia detracted slightly from performance.

Looking to Emerging Market News:

• the Middle East conflict transitioned into a volatile "dual blockade" and contested diplomatic phase. On April 7, the US and Iran initiated a two-week ceasefire, which was later extended despite mutual allegations of violations. Tensions remained high as Iran continued blocking the Strait of Hormuz, charging ships excessive tolls. The US responded on April 13 with a counter-blockade of Iranian ports, ultimately preparing "Operation Project Freedom" to escort stranded vessels.

• In Hungary, the April parliamentary election delivered a landslide victory for Péter Magyar, whose Tisza party secured a two-thirds majority, ending Viktor Orbán’s 16-year rule. The result marks a major political shift in Central Europe, with implications for EU cohesion, rule of law reforms, and potential unlocking of frozen EU funds. More broadly, it weakens the influence of nationalist blocs and may reshape regional political dynamics and capital flows.

• The UAE confirmed its departure from OPEC, signalling a shift towards maximising production capacity and independent policy setting. The move highlights underlying tensions within the cartel and may weaken long-term supply coordination. While near-term oil markets remain tight, structurally this raises uncertainty around pricing power and future supply discipline.

• Romania entered a political crisis after the Social Democratic Party withdrew from the ruling coalition, removing its parliamentary majority and prompting ministerial resignations. The situation escalated into a successful no-confidence vote, collapsing the government and raising concerns around fiscal discipline, EU fund access, and currency stability. While not a core EM market driver, the episode highlights governance fragility in Eastern Europe and risks to reform momentum.

• The IMF Spring Meetings reinforced concerns around uneven global growth, persistent inflation risks, and tighter financial conditions. Policymakers emphasised fiscal discipline, structural reform, and resilience to external shocks. For EM, discussions centred on higher-for-longer rates, debt sustainability, and vulnerability to geopolitical shocks, with indirect implications for capital flows, refinancing conditions, and sovereign risk premia.

Outlook

Markets are currently navigating a defensive period as the Iran-US negotiations sit at a tense impasse, with both nations maintaining strategic blockades around the Strait of Hormuz to gain leverage in ongoing discussions. While there is a clear intention from both sides to avoid a full-scale military escalation, they are actively seeking pressure points to strengthen their respective negotiating positions. This is evidenced by recent headlines suggesting that the US administration has explored an extended closure of the Strait as a tactical move. Such developments have sent oil prices surging, with both Brent and WTI crude trading above $100/bbl. Consequently, markets are beginning to price in the risk of a protracted closure, leading to higher long-term oil futures and rising core yields.

Inflation expectations in Europe have shifted significantly higher, a trend likely to be mirrored globally. Investors were particularly focused on the Federal Reserve, where the Fed had held interest rates.

Within the Emerging Markets fixed income sector, this energy shock is driving significant dispersion between regions. Commodity exporters, particularly those in Latin America, are currently better positioned due to structurally elevated oil prices. Conversely, Asian importers face the dual challenge of surging energy costs and decelerating economic growth. Although EM credit spreads remain relatively tight, the current all-in yields are elevated compared to pre-war levels, offering a buffer for total returns.

However, if this geopolitical stalemate persists for several more weeks, we anticipate a broader repricing of growth and inflation assumptions which would likely pressure spreads. In local markets, FX has remained resilient despite the inflationary backdrop due to expectations of medium-term USD depreciation. Nevertheless, rising inflation expectations continue to weigh on rates markets. While we await the contours of a diplomatic solution, we remain comfortable maintaining a strategic bias toward Latin American markets and those companies that act as net beneficiaries of, or are resilient to, high energy prices.

1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index.

1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index.