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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.

Disclosure
This material is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This material does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This material is not available for distribution to investors in jurisdictions where such distribution would be prohibited.

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), RBC Global Asset Management (Asia) Limited (RBC GAM-Asia) and RBC Indigo Asset Management Inc. (RBC Indigo), which are separate, but affiliated subsidiaries of RBC.

In Canada, this material is provided by RBC GAM Inc. (including PH&N Institutional) and/or RBC Indigo, each of which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this material is provided by RBC GAM-US, a federally registered investment adviser. In Europe this material is provided by RBC GAM-UK, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this material is provided by RBC GAM-Asia, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.

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© RBC Global Asset Management Inc., 2025
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