Hello and welcome to our webinar From Tariffs to Tech, Navigating the New Normal in Emerging Markets, sponsored by RBC Global Asset Management. I’m Lauren Bailey, Deputy Editor at Markets Group. I’m joined by Polina Kurdyavko, Head of BlueBay Emerging Market Debt on the Fixed Income team, as well as Laurence Bensafi, RBC GAM’s Deputy Head of Emerging Market Equities. As globalization evolves into a more regionalized framework, emerging market countries are recalibrating and repositioning themselves to benefit as institutional investors seek diversification. In today’s discussion, Polina and Laurence will explore just how emerging market countries are adapting to new trade realities and driving surprising performance across asset classes. Polina and Laurence, thank you for joining us today.

Thank you.

It’s a pleasure.

I’d like to start by looking at the current realities on the ground that emerging markets have been grappling with over the past few months and even years. The post-COVID recovery has proven rocky, especially as much of the developed world reconfigure supply chains and navigates a shifting tariff landscape. So with all that in mind, let’s dive in. Laurence, what’s your take on the current global market landscape? The good, the bad, and the areas of opportunity that stand out for you right now?

Yeah, thank you so much Lauren. Look, I think we believe that we are the turning point at the moment for emerging market equities and they’re about to regain the weight they deserve into equity portfolios and to trade are the true worst. It’s true that emerging market, as you said, has been a tricky few years, more than few years now, and have underperformed quite a lot. They’ve been out of favor as, especially US equities have been so strong and the US dollar have been so strong. But really we believe that this year things have changed and that actually after years of globalization and lack of industrial policies in the West, emerging market countries have really benefited. They took that to their advantage and have actually transformed their economies and that has translated much better fundamentals for those countries. And I know Polina is going to talk about it, but that hasn’t really translated into strong equity gains until now. But we really believe that we are just at this turning point. And so the big opportunity for us from next year and the following years will be EM equities in general. Having said that, what is more tricky and maybe the bad is for sure the geopolitical environment that will remain very challenged over the next few years. So it’s not going to be a straight line, but we see lots of opportunities in our asset class with a lot of volatility probably.

And Polina, what are your thoughts?

Thank you, Lauren. I would say that when we look at the good in emerging markets, to us there are three pillars that we have to consider now. Firstly, the evolution of the monetary framework, and I’m sure we’ll talk about this in more detail, but to us it’s not just a 2025 development, it’s a 20 years development that is now yielding fruit in the terms of more orthodox monetary policy. The second theme is the geopolitical transitional shift in the context of the new US policy mix. And we do think that there are some regions like Latin America, there are clear beneficiaries from the current policy mix in the US and obviously Donald Trump being the president. The third one would be expectations of defaults. We always feel that that’s the highest, that’s the factor that has the highest correlation with prediction of the performance of the spreads. And here, while we don’t think default will be zero, we think that they will remain at substantially at the very low level, a level below, you know, 1% for the sovereign debt for example, which is substantially below historical average. And therefore we feel that these three pillars will support pretty strong fundamental case for emerging markets. Now, at the same time, when I think about the bad, I actually think that the events on the ground might present a lot of uncertainty to people on the ground and if you will, our day-to-day lives. You know, if I look at the events, for example, in Venezuela with uncertainty, to put it mildly on the future of the regime, when I look at the events in Lebanon again and the escalation between Israel and Hezbollah, that’s another uncertainty. Those are big uncertainties. However, what is interesting for me as well is that actually while they might have a negative from ramifications on the people’s life, day-to-day life, they might present themselves as opportunities for investors. You know, if you look at the country like Venezuela, when the bonds are trading at low 20s in terms of cents on the dollar, if there is a likely outcome which is positive for investors, IE change of regime or even removal of the current president from Venezuela, these bonds have potential for 40, 50% outperformance. So very similar situation in Lebanon with the bonds trading in low 20s. So what is ironic today in the market is that the uncertainty on a day and the negative impact potentially in the short term and the day-to-day lives of people might actually be viewed as an opportunity from a market perspective and investors’ perspective in emerging market fixed income.

Very interesting. Laurence, I’m curious, are the current US tariffs and trade restrictions achieving their intended goals? Or are they just accelerating supply chain shifts that have actually strengthened rather than weakened emerging market fundamentals?

Yeah, that’s really fascinating because we would’ve thought really a year ago, before Donald Trump came into power and there was a lot of talks about tariffs and the market was very worried at the time, we would’ve thought that not only emerging market equities would’ve a strong performance but would massively outperform actually US equities. So really at the time we were thinking that look, there would be, the tariffs would come, there would be negotiation, emerging market countries would have to give concessions and hopefully the tariff would be lowered. But really what happened is that after liberation day, we really think that tariffs backfired on Trump. Obviously the market collapsed, US dollar collapsed and it’s only when the tariffs were paused a few days later that we started to see a rebound. And since then, that’s when we see the true outperformance of emerging market equities and actually the countries that were the most targeted by the tariff. So China, Taiwan, Mexico, Korea are some of the best performers this year with a country like Korea returning more than 70% for the year. So I think the way I’m saying it backfired on Trump because actually what it should is exactly what you explained is that those couple of decades where the West didn’t really focus on manufacturing and was very happy to outsource to poorer countries has really transformed those economies and frankly as Polina kind of alluded to, emerging market today look in a much better shape than developed market. If anything developed market looks like emerging market long time ago with, you know, political instability, high level of debt, high deficits, when actually emerging markets in most cases are doing very well, especially on the trade front. So, and it’s not only one country, it’s a variety of country that really benefited, I would say Northeast Asia for sure, Taiwan, Korea, China, those country have been able to stand up to Trump because they know actually they have the US has more to lose than themselves. So this is something we’ve been flagging for quite a long time. But I think what is interesting is that investors have really realized that, and it would take more than, you know, tariff to re-onshore into the West, especially in the US. So we believe that the situation will remain the same for quite some time and maybe even a different approach will be needed to make sure that those country invest in the US. You know, we talk to those corporates on a daily basis that tell us that I would want to invest in the US but it’s not easy, it’s not simple to find the land, to find the staff is the main issue, to find a labor, to find talent in the US. So really at the end of the day, we don’t expect tariff to be such a big issue for emerging market countries. We think where it matters, the tariffs have been paused or lowered and we would expect this, this move to continue and in the meantime, that really highlighted EM have changed over all those years.

And Polina, with the arrival of the new US administration, to what extent were emerging markets prepared to respond? Were central banks able to act swiftly and decisively to maintain some price stability?

Well, it’s interesting to observe that if you look at the path of emerging markets, again, it wasn’t an emergency action on the back of Trump arrival that actually helped emerging markets. It has been the work done in the prior two decades. You know, if you think about what has happened firstly over that longer period of time has been impressive growth in the size of local currency debt. So if you think about today, local currency debt is equivalent to the size of US treasury markets. We are almost talking about $30 trillion just in local currency fixed income in emerging markets. And if you take again, two, three decades ago, the relationship between hard currency and local currency was the inverse. So today, local currency accounts for over 90% of all debt outstanding in emerging market fixed income. Before, majority of debt was in external, in hard currency. And that is why we saw more vulnerability for emerging markets. So coming back to the monetary policy, firstly, central banks have the biggest change in our market has been monetary policy orthodoxy, which allowed for the growth in domestic markets. So that is a very important factor. Now, more recently in the last five, seven years, again, after COVID, we’ve seen emerging market central banks being a lot more hawkish, IE, a lot more proactive in hiking rates worried about inflation spike rather than developed market counterparts. And that created a situation where coming into this year, almost regardless of Donald Trump policies, most emerging markets, central banks were in a fantastic position because they’ve seen already inflation coming down, but they were still maintaining a very hawkish stance in terms of higher real rates and higher nominal rates. And that’s what allowed those countries really weather quite well against the volatility of and of the headlines related to tariffs or geopolitics. Because fundamentally, we actually had very sound footing with tailwinds of inflation that is coming down, rates that were quite supported or quite high and that provided additional resilience to withstand the current volatility that we’ve seen in 2025 for emerging markets.

So despite what people say, people you know may be thinking that it’s not solid fundamentals, it is because you know, you know, they may be riding the coattails of the US weaker dollar. It’s actually the strong fundamentals that have been set in place over decades.

Correct. And perhaps I would expand on the fundamental narrative because one pillar is very important is the monetary policy pillar that we’ve discussed. The second part of the fundamental pillar is your level of debt indebtedness. And again, this is a ratio which continues to be much lower in emerging markets compared to developed markets both on the sovereign side, if you measure it as debt over GDP or on the corporate side when you measure it as leverage where the emerging market corporates have reached the lowest leverage since 2008 and this is not the case for developed markets. And then the last pillar is the fiscal pillar, which Laurence referenced and if you look at the fiscal dynamic, firstly, emerging markets haven’t widened their fiscal deficits to the same degree than developed markets did with when COVID hit the world. And also if you look at the projection for the next five years, emerging market fiscal deficits are expected to contract going forward, which is again not the case for developed markets. So the combination of tighter fiscal, lower leverage, orthodox monetary policy, that’s what translated in a more resilient fundamental setting for emerging market economies entering this year.

So given how compelling emerging market valuations remain and with potential technical support from it renewed inflows, can this outperformance continue into 2026? And if so, what catalysts will be key?

Yeah, so on the equity side, you’re absolutely right. Even after the strong performance, outperformance of 2025, EM equity still trade at the biggest discount basically ever to develop market. So about 50% discount, which long term is more around 20%, so a very large discount. So you can imagine that there’s a lot more to go for the equity market. Having said that, even with strong fundamentals, sometimes you can lag in terms of the equity market, there can be a disconnect. So we need more catalyst on the equity side. So there’s few that could continue to play out for 2026. I would say one of the big one is obviously China. There’s a big question mark around China. The market has done well this year, mainly quite narrow to be honest, mainly on the back of the technology sector, again, driven by AI. But in terms of the rest of the market, especially property, consumer, still being weak. So we would need really the property sector to stabilize and the consumer to feel more confident that it can spend all this huge pile of saving in the country. So that’s going to be very interesting to see what happens in China. I think India is another of the big countries where we would need reforms have kind of stopped recently and that’s why the market has been weaker and really underperforming. So we will need to see more reforms coming out of India. Another big driver is the US dollar. What’s going to happen with the US dollar, if we start to see the US dollar to appreciate, again, that could be a headwind, but best scenario is that the dollar will remain at this level or weakened. So that would be positive. But overall I would say from next year and the following years, the biggest driver at the end of the day for continued out performance of EM equities versus DM equities would be superior earnings growth and increased profitability, which is something that has been lacking for many years. Explaining the underperformance and you can say it was a little bit structural for quite a few years with overcapacity or lack of shareholder returns in some of the country. But the good news is that we’ve seen a big change this year and again, it’s one of those turning point where you know when everything is bad and suddenly everything turns more positive. So not only people have realized are fundamentals are strong in emerging market, but on the stock market itself, there’s really a willingness from some of the governments of the biggest country to really focus more on stock market returns. One of the reason is to move away from the dependence on the property sector because we’ve seen what happens when there’s a bubble forms and when it kind of burst, and also to make the stock market more attractive, to have just a better kind of capital market is really important for a country to develop. So we started to see the Value-Up program this year. For instance, in Korea, I mentioned one of the best performing country with a huge focus on value creation and shareholder returns, then China is doing the same now. And we should see more countries, there’s talks about Mexico doing the same, the Philippines, which are very small stock market compared to their size. So there’s a lot going on, a lot of improvement are coming and you’re still paying a very cheap valuation for emerging market equities compared to developed market. So indeed, we see a lot of catalysts for performance. But I want to reiterate again, it’s not a straight line and there’s going to be some challenges also, especially next year.

So I want to talk a little bit more about AI. As you just mentioned, emerging market equities increasingly offer exposure to that global AI theme. Laurence, how significant is this opportunity in Asia where we’re seeing world-class technology companies emerge? But can investors still find gems in this sector at a fraction of developed market valuations?

Yeah, it’s a really good question because we’ve been saying that for a long time and again, it’s the same theme of the transformation of EM countries over the past two decades. We’ll keep talking with Polina. So if you look at emerging market equities 20 years ago, you know, it would be energy materials, cyclicals, industrials, and that’s pretty much it, right? And if you fast forward 20 years later, the biggest sector by far in emerging market is technology. And actually if you compare to let’s say the S&P 500 is quite similar, almost 50% of the index is made up of IT companies, platforms, internet stocks, that’s really very similar to developed market or at least the US because not in Europe, but to the US. However, the valuation remains extremely much, much, much lower. We’ve seen a re-rating of some of those names, but they still trade at a fraction of their counterparts in the US. And for some of those names, especially in the hardware segment, especially in Korea and Taiwan, you really have several world-class companies really the leaders in the field with sometimes no competition in other countries, really high barriers to entry, which means it would be very, very difficult to get homegrown competitors and actually those companies are asked obviously to build capacity all around the world, but that’s not reflected in the valuation. So we are still quite positive, they’re not as cheap as they used to be, but if you believe that the AI theme will continue for quite some time, it’s really a nice way to accept the theme at a much cheaper valuation. And I would say in China as well, you have, which is obviously in a different situation, but what you have in China is really strong industrial corporates that I expose indirectly I would say to the AI theme for instance, when it comes to the grid transformation or the AI data center, everything around electricity and you can run those data centers, you also have excellent companies in China which are setting everywhere around the world and again, face very little competition often. So that’s still a very interesting theme. I think it’s more the timing. So I think it’s good to have some exposure but thinking about maybe that at some point it’d be interesting to rotate into other interesting areas that we have actually in emerging markets.

And so if we turn to China and India specifically, how are reforms and growth trajectories and investor sentiment evolving in these two major markets and how central will this be to the broader emerging market story over the next few years?

Yeah, you’re right. I think there are the two key countries. So when it comes to India is the country that we are very positive on over the medium long term and we’ve always been positive. It’s a great story, especially over the past 10 years, we’ve seen a lot of reforms that have been really paying off. I would say, the economy has really changed for the better with investment in infrastructure. Having said that, that was reflected in the valuation, which for the past two years, we said we’re a little bit excessive and we’re running ahead of fundamentals. So we’ve been happy to take some profit. Having said that, we still think India remains one of the best story in emerging market with high quality corporates. Lots of potential emergence of a huge middle class, urbanization rate is still very low in India and the still willingness to go with reform. We think India is kind of halfway through the reform they need to really sustain high level of growth like China did years ago. So we have to see what happens in the coming years but we remain positive but mindful of valuation. So China is in a different situation. We’ve retraced off of the big sell off we’ve seen in China when people lost confidence about the government, wondering really if China was investible again, I think that has proved premature. I would say as we had been saying and investors are coming back to the market especially after the Deep Seek event that really showed that China was definitely still investing and doing really well when it comes to technology especially. And finally after the tariffs, I mentioned before, the spotlight has been put and realizing how dominant China is in a lot of new industries, especially around renewable energy or electric cars that they have really world class corporates. Having said that, it is well known that China is facing a lot of challenges. I mentioned the property sector, consumer confidence and they would have to solve those problems for the stock market to do better. I mentioned earnings growth is really key and China is really one of the most challenged country. There’s world class companies in the country but they have to face huge competition because of overcapacity, too much subsidies. The government, it was great, they really incentivized corporates to invest and come up with great product they can sell to the world, it’s worked but now there’s too many of those corporates and some have low quality and they need to be kind of closed down basically. So China still interesting valuation are still relatively attractive, especially outside of the technology sector that’s done really well this year. So we see opportunities still in that segment.

Thank you so much Laurence. Polina, you’ve both raised some really interesting key points. I think this is a great time to bring in audience questions and this first question Polina is asking if you could share your perspectives on Latin America and the kinds of debt or equities opportunities you’re seeing coming from the region.

Sure, thanks Lauren. I would emphasize that Latin America is probably the key beneficiary from Donald Trump backyard policy. You know, if you think about this region geographically it is the closest to the US and therefore economically as well. It has the highest correlation with the US and with Donald Trump coming to the US as the president, the priorities have shifted to actually find a ways how to support this region rather than increasing their cooperation and economic relationship with Asia and EMEA regions. Now what does it mean? That means that countries like Argentina have got unprecedented support. Now historically, US key area of support has been through military engagement, military support unlike China, who economically has been very well positioned to cooperate with a lot of countries worldwide in order to continue, if you will export their labor as well as generate economic growth. Now this time around, US has changed its policy to see if they can actually provide economic support, especially to the countries which presidents are politically aligned with Donald Trump. And if you think about President Milei in Argentina, given that he was the only one that supported Donald Trump even before he became president, there’s very strong loyalty between the two individuals. Now what does it mean for investors? It means that to quote Central Bank governor of Argentina whom I saw a few months ago when I was in Buenos Aires, even if he was asked to write down his wish list on the best possible support they could see from the US, he couldn’t have come up with the amount of support that US provided, from purchasing dollar debt of Argentina to supporting local currency, to really going or doing, using drug acronym, whatever it takes to help Argentina. And that is a template on what types support this countries can have going forward. Same can be applied to countries like Ecuador and actually for bigger countries in the region. When we think about countries like Columbia and Brazil, next year, we have presidential elections. Now should the new president be more aligned with Donald Trump and have pursued more market friendly policies, which in our view is much more likely or in a country like Colombia, and is still 50/50 case in countries like Brazil. These countries would also benefit from economic support from the US. So for us, it’s a great opportunity from fixed income perspective, both in hard currency because if you look at countries like Argentina, Ecuador, even, you know, even countries like Columbia, in fixed income world, hard currency debt trades at the widest spreads compared to any other similar rated sovereign or corporate. So Argentina trades at double digit yields still and so is Ecuador. Also, we think there is a great opportunity from a local currency perspective for those countries because again these are the countries that hiked rates to double digit territory. If you look at the policy rate in Brazil, it’s 15% when inflation is supposed to be below five next year. So you have very high real rates as a result. And if we see political risk reducing, we would expect these local currency markets have potential to outperform and compress by another two or 300 basis points. So that is a potential offset from the region as we look into 2026.

Okay, well this next person would like to know and Polina I think this is more for you as well, which frontier markets interest you the most and why?

So if we think about frontier markets, we need to frame it in the context of defaults. I’ve outlined that historically, oh sorry, the bigger emerging market economists are doing quite well with the tightening fiscal and reducing indebtedness, in frontier markets, we have gone over the last seven years through a double digit default cycle, which actually for us provided a great opportunity to generate alpha because the truth is the only time you can double your money in fixed income is when the bonds trade, you know, at 20 or 30 cents on the dollar and you expect the recovery to be double that. However, going forward, we think that firstly looking at frontier market, we would expect default rate to be low, at the moment we think in our forecast and we forecast every year bottom up defaults for corporates and sovereigns, in our forecast, only one country has 50% chance of defaulting next year out of the global emerging markets and that would translate in less than 1% expected default rate for high yield segment. So we don’t expect to see a return of double digit defaults like we’ve seen last year. Secondly, what we like is the focus on some frontier markets which have put effort in the reform agenda. You know, let’s say Nigeria could be one of them, but are required to provide more transparency if you will, and tighter structures in order to continue accessing the market going forward. So we are working with some of the frontier economists in order to structure the deals that are using the proceeds specifically on certain projects that will improve their ESG risks and provide us as investors more transparency on the use of proceeds. We think that’s a very interesting opportunity and we would expect more labeled issuance from some of the frontier markets. Last but not least, I would say that we would expect new countries to come to the market. You know, if you look at the countries like Democratic Republic of Congo that historically have not had any debt outstanding but also happen to be the largest storage of rare minerals within emerging markets outside of China, we think it’s this type of countries that might consider opportunity to come to market and to get access to funding and again provided that we can get the structures right and we are comfortable with the risk, that also is an interesting opportunity to pursue.

And if it seems like the rally in emerging market equities has been equally concentrated and narrow to AI, where are you seeing value going forward in other sectors? Laurence, I think this one is probably aimed towards you.

Yes, yeah, no absolutely it’s a good point. As we mentioned, it was very concentrated in 2025, great performance per core concentrated, which means we see quite a lot of opportunities. So looking at sectors, I think the two that are standing out for the asset class is first, financials. It’s a sector we’ve liked for a long time. There’s definitely need for increased penetration of financial services in emerging markets. In some countries it goes from just, you know, half of the population doesn’t have a bank account and in some countries where there are bank accounts, they don’t invest much into wealth management or saving products or mortgages or it really depends. And those financial companies tend to be well managed because they went through years and years of crisis and usually the surviving one tend to be quite profitable, very well managed. And despite all of that with an environment where interest rates are going down but still remaining at a certain level above what it was before, before COVID, that’s really a sweet spot environment for those financials. Despite all this positive around those names, financial trade are very big discount to the market and to their own history. So we think that’s really an area of big interest. The second sector that is really interesting is consumer staples. Again, it’s one of the big theme for emerging market, urbanization, increase of the middle class and this is a growth sector in emerging market. But despite that, since COVID with higher inflation in sector, that has been really tricky and has really derated to, again, one of the lowest valuation ever. So wwe really like those two sectors in terms of rate valuation, I would say in terms of regions, Latin America, Polina mentioned. We also think on the equity side there’s a lot of opportunities with political changes with more business friendly leaders coming and align indeed with President Trump and usually, Latin America is the most exposed to a weaker dollar as well and the valuation are quite attractive. So that’s another area we like. And finally to finish in terms of the countries, Korea, I mean Korea is incredible what’s going on in Korea for someone who’s invested in Korea for very long time is really a game changer that is happening in Korea with the Value-Up program for the first time ever, a really big focus on shareholder returns. The country has done well, the stock market has done well, but we see a lot more potential for re-rating because it remains one of the cheapest country in emerging markets. I would say for 2026, the difference is that 2025, everything went up a little bit. People were very excited about what was happening in the country. I think from next year it’s going to be more selective, which is good for active fund managers and definitely some names will go down back to earth, but some other names have definitely a lot more upside. So that’s a market we are quite interested still for next year.

So unfortunately we do have to start wrapping up. Laurence and Polina, thank you so much for sharing your insights. I want to quickly mention that both the Emerging Market and Fixed Income teams at RBC GAM produce thought leadership around their research on the ground in Polina’s Perspectives, EME Notes from the Road and RBC’s Annual Market View videos. They’re all available on the RBC GAM website at rbcgam.com or in the quick links in the sidebar. I also want to encourage everyone today tuning in to register for the US Fixed Income webinar we’ll be hosting next week on December 17th at 2:00 PM. And before we sign off, everyone, please do take a moment to complete our feedback form. We want to hear from you. And thank you again for joining us today. Enjoy the rest of your week.

Thank you very much.

Thank you.