Emerging-market (EM) corporates have a track record of resilience across market cycles. For over a decade, EM corporate bonds have allowed for participation in rising markets, while exposing investors to less downside during market downdrafts. This is due to an especially pronounced inherent barbell structure that balances interest-rate risk with credit risk, providing independent sources of return that are negatively correlated to each other.
EMD has become increasingly appealing to a broader investor base as the asset class has developed. Issuance has increased, thereby improving liquidity.
Artificial intelligence (AI) has the potential to provide a tailwind for commodity and manufacturing exporters in emerging markets. That said, the emerging market (EM) service sector’s lower contribution to Gross Domestic Product (GDP), as well as a lack of research and development, and the presence of infrastructure and AI private investment bottlenecks, could cap productivity gains over time versus developed markets. We explore the dynamics in this article.