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Strong fundamentals and low defaults

The EM corporate story

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1 minutes to read by  A.Kettle, BlueBay Fixed Income Team Mar 12, 2025

Despite global challenges in recent years, such as supply chain disruptions, inflationary pressures and geopolitical uncertainties, EM economies have demonstrated healthy resilience. Similarly, after an elevated default cycle in 2022 and 2023, net leverage in the EM corporate universe is close to historical lows, with cash-to-total debt significantly higher than developed market (DM) counterparts. Within this backdrop, we expect that spreads will continue to be driven by the underlying default outlook and default rates for the high yield component of the JP Morgan CEMBI index to be below both the U.S. and European high yield sectors.

Key Points

  • EM corporates are entering 2025 from a position of strength, with the asset class having outperformed DM peers across all ratings categories in 2024.

  • The high default rates of the post-Covid era are now behind us, with EM corporates going through a sharp de-leveraging event as a result.

  • We expect corporate defaults to be in line with U.S. markets and meaningfully lower than Europe.

  • There are favorable internal dynamics with EM corporates but likely headwinds from the U.S. policy agenda.
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