News Overview

EM Corporate Bond Newsletter

May 2025

Monthly report of the fund management

Vladimir Ilyich Ulyanov, aka Lenin, once said: "There are decades in which nothing happens and weeks in which decades happen". That's roughly how the last few weeks on the market have felt.

Emerging market corporate bonds achieved a slightly negative absolute performance in April. Risk premiums closed around 40 basis points higher. The US yield curve steepened: 2-year yields fell by 28 basis points, 10-year yields remained unchanged and yields at the long end of the yield curve rose by 10 basis points. Yield volatility was very high due to the US administration's rhetoric regarding the conversion of long-term US debt into 100-year, lower-yielding bonds. This was compounded by Trump's verbal attack on Jerome Powell, which puts the future independence of the Fed at risk. 

 

Macro Overview

With the news and situation changing almost on the hour, one thing remains clear: tariffs affect consumption, investment and production. Trump's policies are also having a negative impact on tourism in the USA - primarily on airlines, but also on restaurants on the Canadian border.

The data from March/April still point to solid growth in the global economy, but the purchasing manager indices worldwide (as an expectation component) indicate a stronger slowdown. How this divergence will close will depend on how quickly acceptable negotiation results are achieved and how high the final tariffs will be.

An interesting development can be observed in the US in terms of prices paid (production input) compared to prices received (output): many companies reported that they had to pay higher input costs in March/April, but most left selling prices unchanged - a clear indication that they are refraining from passing on prices for the time being and "swallowing" the potential decline in margins. There are also front-loading tendencies fueling consumption before the higher prices caused by tariffs take effect. Some economic indicators are therefore likely to give a distorted picture. For the Fed, all of this means to observe which indicators (labour market/growth or inflation) will have the biggest effect. Most analysts expect interest rates to be cut to a level of 3.25-3.75% in the second half of the year. This could possibly be too optimistic if "basic tariffs" remain at 10% and the economy does not enter a recession. 

Industrial metals suffered from growth fears and fell across the board in April. Only gold was able to benefit from the increased uncertainty. The oil price was negatively impacted by both the supply and demand side.  Weaker growth means less demand and Saudi Arabia is increasingly dissatisfied that OPEC+ members such as Kazakhstan and Iraq are not adhering to the agreed production quotas. The shale oil/gas boom in Argentina and production opportunities in Guyana are undermining Saudi Arabia's efforts to cut production once again. A US deal with Iran could also increase supply on the market. The USA is pushing for Iran to open-up its economy in the longer term. 

Emerging Markets Overview

The confrontation between two major powers China and the USA, is currently coming to a head. The world has suddenly become too small for these two protagonists. They are clashing on more and more levels, from AI to global trade. From the US perspective, the ultimate aim is for China to reduce its actively expanding sphere of influence in areas of interest to the USA, which seems unrealistic.

US Treasury Secretary Scott Bessent put it precisely: China should focus more on "internal circulation", i.e. domestic demand or opening domestic markets. He also said that a deal with China was a goal for the next 2-3 years, i.e. it would first be important to define the framework conditions for a subsequent concrete elaboration.

Both China and the USA know that the current exorbitant tariffs on goods cannot be maintained in the long term. On Monday, agreement was reached on a 90-day suspension of the high tariffs, which was well received on the markets. Only one thing is relevant for the global economy: The main thing is that a rapprochement or agreement is reached now as soon as possible. Otherwise we can expect high inflation in the USA and empty shelves in department stores. The cargo port of Los Angeles has already reported a real slump in container volumes compared to 2024. It seems indisputable that this development could have an impact on the all-important Christmas business.

Chart 1: Does a sharp drop in container volume at the Port of Los Angeles indicate an imminent void in US shelves? Source: Port of Los Angeles

Notes: Forecasts and past performance do not allow any reliable conclusions to be drawn about the future performance of the funds mentioned. The indices shown serve as a key figure to illustrate the performance of selected financial instruments. They are used to document the representative performance of this specific market in the global financial arena. The following changes reflect the performance of the financial instruments contained in the hypothetical portfolio; no direct investment is possible.

After an initial reaction, China has reduced tariffs on US goods that the country absolutely needs (such as ethane) back to zero, otherwise the plastics industry would not be able to survive. Import tariffs remain on food products such as meat and grain, where China can switch to Brazil and source many products from there. US producers are already complaining about the onset of weak demand.  At the same time, China has introduced far-reaching support measures for the domestic economy. It is rumored that 20-30 million jobs could be lost in China because of a trade war. 

India has the highest import tariffs in Asia (from agricultural goods to automotives) and is currently negotiating with the USA. The domestic economy is robust on the surface, but the negative effects (defaults) of too rapid credit growth are visible among smaller financial service providers. 

Moody's has given Thailand's rating (Baa1; and that of the country's banks) a negative outlook and thus downgraded it. In addition to the high level of debt from Covid times, the expected economic weakness due to the tariff policy was also cited as a reason.

Korean exports slumped unexpectedly in March and were seen as an indicator of a potential slowdown in the global economy.

Mexico's President Scheinbaum has negotiated quite cleverly so far and was thus able to avoid the worst consequences. There is co-operation on migration issues and the fight against drug trafficking is being stepped up. So far, there has been a categorical refusal to allow US troops to protect the borders on Mexican soil. The coming months will show whether Mexico will get off lightly here. The economy is already showing signs of weakness, which is mainly reflected in consumption. So far, remittances from Mexicans living in the USA to Mexico have remained stable.

Brazil continues to suffer from the dumping of Chinese steel, which is keeping inflation lower in the country. It seems to be a more important goal for the government and the associated profit weakness of domestic steel producers is being accepted. Export demand for agricultural products remains high, but a deal between the USA and China would jeopardise this considerably.  Paper pulp producers such as Suzano are already seeing stable to slightly declining prices in China, and a weaker yuan (due to the trade war) would be detrimental to them. Finance Minister Haddad started Brazil's negotiations with the USA at the beginning of May.

Argentina has received an unusually lavish deal from the IMF (following Milei's visit to Trump) to further stabilize the expansion of the peso's tradability. The country is benefiting from increasing investment in the oil and gas sector by local companies acquiring stakes from foreign companies. Telefonica is also planning to sell its local subsidiary. It seems as if local companies have a more constructive view on Argentina and are taking advantage of the opportunity to expand their market share in their home market.  

Overview of EM Companies

EM companies are affected by tariffs directly - e.g. manufacturers of car parts in Latin America or developers/landlords of commercial property in Mexico - or indirectly through lower commodity prices or consumer uncertainty. Most companies in our investment universe are affected more indirectly by tariffs.  Although the effects are not immediate, they are easy to predict based on the economic indicators for consumption or commodities.

Note: The companies listed here have been selected as examples and do not constitute investment recommendations.

Highlights from the company reports: the latest reports for Q1 2025 were in-line or slightly weaker compared to Q4 2024.  There were a few positive exceptions, such as TAV, the airport operator in Europe & Asia, which presented good figures. We expect the rating to be upgraded fom B+ as S&P will positively assess the cancellation of the guarantee for the refinancing of the loan for the new Antalya airport and thus the reduction of its liabilities.

Gerdau (steel, BR/USA) does not want to build a new plant in Mexico due to the tariff policy and reported mixed figures. The company's CAPEX cycle for the next three years is also not exactly optimal in terms of timing.

LatAm reported good figures for the airlines (positive: low oil price, negative: currency effects) and raised its profit forecast for the year slightly - net debt was revised downwards slightly to 1.5 times EBITDA.

Aeromexico is already showing signs of the onset of consumer weakness (as is the case with retailer FEMSA), but its bonds are secured by its solid balance sheet (this also applies to LatAm bonds).

CEMEX also saw the weakness of the economy in Mexico (-25% in sales quarter on quarter), net debt rose from 1.8 to 2.2 times EBITDA, although the company's geographical diversification is still helping for the time being.

Mexican banks remain highly capitalised and reported good figures, in contrast to the Mexican chemical companies Alpek and Orbia, which reported an increase in debt. Orbia could even receive a warning from the rating agencies (currently still rated BBB-). Following the weak figures, the company called bonds maturing in 2026 and issued longer maturities that already correspond to yield levels of BB/BBB-.  

S&P has raised the rating of OTP (Hungary) to BBB and praised the bank's diversification and capital structure, which would survive even a hypothetical Hungarian bankruptcy. We have been overweight here for some time.

Outlook & Performance

Market developments in April were quite extraordinary, even for an old hand like me (Funds manager Péter Varga, editor's note), doing EM Corps since 2007. The new and often 180-degree turning news situation on a daily basis and the fact that US government bonds lost some of their previous function as a safe haven were quite challenging, this hedging measures did not work as expected. The volatile news flow made it virtually impossible to position for a specific scenario. Our somewhat more defensive orientation in the fund for some time now and the corresponding title selection helped our fund to outperform the market and the peer group, but the abrupt correction in risk premiums caused this to diminish again somewhat towards the end of April.

We remain very vigilant and are endeavoring to weed out the weaker companies from this sometimes-hectic mix of economic developments. However, with the absolute yields currently prevailing, "not being invested" also means missing out on performance. As is so often the case and feels more so than ever, in emerging markets it is a razor-sharp balancing act between actively taking a risk position and prudently waiting on the sidelines when it seems opportune.

Note: Please note that investing in securities involves risks as well as opportunities.

Performance opportunities for the funds:

  • US tariff policy remains in the spotlight which continues to offer investment opportunities.
  • Single stock selection offers opportunities in a volatile market environment. 

Performance risks for the funds:

  • Significant weakening of the economy
  • Stagflation in the USA

     

Overview Performance

ERSTE BOND EM CORPORATE

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1W4B7 = Distributing share (A)
AT0000A1W4C5 = Accumulating share (VT)

Retail share classes

AT0000A05HQ5 = Distributing share (A)
AT0000A05HS1 = Accumulating share (VT)

ERSTE BOND EM CORPORATE IG

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1Y9D0 = Distributing share (A)
AT0000A1Y9H1 = Accumulating share (VT)

Retail share classes

AT0000A0WJX7= Distributing share (A)
AT0000A0WJZ2 = Accumulating share (VT)

ERSTE RESPONSIBLE BOND EM CORPORATE

Note: Performance chart since fund launch. Past performance does not allow any reliable conclusions to be drawn about the future performance of the funds. The performance is calculated according to the OeKB method. The performance assumes a full reinvestment of the distribution and takes into account the management fee and any performance-related remuneration. The one-off front-end load that may be incurred upon purchase and any individual transaction-related or ongoing income-reducing costs (e.g. account and custody account fees) are not included in the presentation.

Institutional share classes

AT0000A1PY56 = Distributing share (A)
AT0000A2MKX2 = Accumulating share (VT)

Retail share classes

AT0000A13EF9 = Distributing share (A)
AT0000A13EH5 = Accumulating share (VT)

Overview performance contribution in %

Performance contribution at country level

(relative to the benchmark)

Performance contribution at share level

(relative to the benchmark)

Source: Erste AM; Calculation period April 2025; Contribution to gross excess returns in %, Fund: ERSTE BOND EM CORPORATE, Benchmark: J.P.Morgan CEMBI Broad Diversified Composite Index hedged in EUR; Gross performance data (without deduction of management fee); The companies listed here have been selected as examples and do not constitute an investment recommendation. In the context of active management, the above portfolio positionings may change at any time. 

Fund management

Lead-Manager Péter Varga

...has been a member of the Credits team at Erste Asset Management since 2005. As a Senior Professional Fund Manager, he is responsible for various emerging market corporate bond strategies in the team. He has more than 20 years of investment experience. Before joining the company, Péter Varga was responsible for convertible bond and corporate bond funds and the management of two total return funds at Union Investment (Frankfurt/M.).

Co-Manager Thomas Oposich

...is a senior fund manager in the fixed income division of Erste Asset Management. His current focus is on emerging market corporate bonds. Thomas Oposich has been with the company since 2005 and has many years of experience in bond management. During his career, he has been responsible for a broad range of bond funds consisting of US government, money market and corporate bonds, as well as mortgage-backed securities and euro government bonds.

Co-Manager Agne Loibl

...has been with Erste Asset Management since 2010. As a Senior Fund Manager in the Credits team, she is responsible for emerging market investment grade corporate bonds and the Asian markets. Agne Loibl has extensive experience in the area of credits. She started her career in research at ESMT Customized Solutions in Berlin and moved to Risk Management Securitisations at Erste Bank in 2007. 

Relevant new issues

Overview Erste AM EM corporate strategies

Source: Erste Asset Management; Data as of 31.3.2025

Ratings

For a further analysis, you can view our fund at:

Morning Star Rating:                4 Stars
Morning Star Sust. Globes:     3 Globes
Scope Rating:                           A – 69/100

Contact us

Personal contact with you is particularly important to us.
If you have any questions about our investment solutions, our team will be happy to help you.

E-Mail: institutional@erste-am.com

Risk notes for the mentioned funds

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. All data is sourced from Erste Asset Management GmbH, unless indicated otherwise. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011.

The fund prospectus, Information for Investors pursuant to Art 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the  website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund. Please note that investments in securities entail risks in addition to the opportunities presented here. The value of shares and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your shares. Persons who are interested in purchasing shares in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to Art 21 AIFMG for restrictions on the sale of fund shares to American or Russian citizens. Misprints and errors excepted.

The public sale of shares in the specified fund in Germany was registered with the Federal Financial Supervisory Authority, Bonn, pursuant to the German Kapitalanlagegesetzbuch (KAGB). The issue and redemption of unit certificates and the execution of payments to unit holders has been transferred to the Fund's custodian bank/depositary, Erste Group Bank AG, Am Belvedere 1, 1100 Vienna, Austria. Redemption requests can be submitted by investors to their custodian bank, which will forward them to the Custodian Bank/Depositary of the Fund for execution via the usual banking channels. All payments to investors are also processed via the usual banking clearing channel with the investor's custodian bank.. In Germany, the issue and return prices of shares are published in electronic form on the website www.erste-am.com (and also at www.fundinfo.com). Any other information for Shareholders is published in the Bundesanzeiger, Cologne.

Presentations:

It is expressly noted that presentations shall not be construed as providing investment advice or investment recommendations; presentations simply represent the current market opinion. The presentations are not intended as sales instruments and shall therefore not be construed as an offer to buy or sell financial or investment instruments. The investor shall be solely responsible for any and all decisions that he makes on the basis of this presentation.