News Overview

EM Corporate Bond Newsletter

July 2025

Monthly report of the fund management

Emerging market corporate bonds achieved an absolute performance of around 1% in June, with risk premiums narrowing by approximately 15 basis points. US yields fell by around 15-20 basis points across the yield curve. Auctions of long-dated US government bonds were better than expected, which also helped to calm this market segment. 

 

Macro Overview

Commodity prices remained well supported in June. Copper prices rose in the USA, with the announced 50% tariff also fueling buying interest. This is set to come into force on 1 August, provided Donald Trump sticks to his guns. Oil prices remained stable at 70 US-dollar (Brent), even though OPEC+ countries had increased production capacity more than expected.

The summer months are seasonally strong and provide a certain degree of stability. The 12-day war between Israel/the US and Iran caused some price spikes but the market ultimately assumed that Iran would refrain from closing the Strait of Hormuz, not least to avoid harming itself – after all, the regime needs money... Precious metals were stable, so EM assets also performed well on the commodities side.

The US macroeconomic picture remained stable in June. Estimates for economic growth are around 2.5% in real terms. As described in the last newsletter, the labour market remained stable and there was no increase in layoffs. Powell is coming under increasing pressure to lower key interest rates. However, the latest Fed meeting minutes showed a divided picture between those members who can envisage a cut soon and those who would prefer to wait and see the effects of tariffs on inflation and the labour market. What Trump described as a witch hunt against former Brazilian President Bolsonaro and recently imposed a 50% "punitive tariff" on Brazil is indeed taking the form of a witch hunt in the case of Jerome Powell. Here, there is no hesitation in portraying the cost of renovating the Fed's headquarters as excessive and wasteful – naturally, from Trump's point of view, this is all Powell's fault and calls for his resignation.

Emerging Markets Overview

The US and China have agreed on the delivery of rare earths to the US. In return, an agreement was reached on the delivery of ethane to the People's Republic which is urgently needed by the local chemical industry. Interestingly, however, China does not want to hear anything about stopping fentanyl exports – it seems as if it wants to "flood" the West in the same way that it was flooded with opium in the past. 

China is taking a completely different approach to tackling the deflationary problem of overcapacity. The plan is, for example, to close surplus capacity or to maximise payment terms for suppliers to 60 days. Finding a balance between domestic demand and exports will be a lengthy process. The tariffs and anti-dumping measures imposed by export destinations were certainly also a factor in this decision. Another covert measure taken by China to date has been to use Vietnam as an "export gateway". It is therefore not surprising that Vietnam's exports to the US have risen sharply recently. 

Chart 1: Will the measures taken by China help to halt the slump in exports to North America? Source: Bloomberg, Data as of 30.6.2025 

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.

Chart 2: Strong increase in Vietnam's exports to the US
Source: Bloomberg, Data as of 30.6.2025 

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.

Vietnam has also expressed its desire to join the BRIC group. China welcomed this decision, as was to be expected. Meanwhile, Trump has once again threatened the group members with tariffs.

In Montenegro, there is interest in real estate investment from Arab countries such as the United Arab Emirates. Hotels and infrastructure worth 20-30 billion euros are to be built in the south of the country.

Brazil has opened an investigation into dumping prices to examine imports of steel products from China and Russia. Local steel producers such as Usiminas and CSN would benefit from this.

Meanwhile, Trump imposed a 50% tariff on Brazil due to "suppression of freedom of expression" (this affected US social media platforms such as Meta and X) and judicial arbitrariness (proceedings against former President Bolsonaro, Trump's "friend"). Lula appeared combative. However, it is expected that a diplomatic solution will be sought first.

Suzano and Embraer are relevant to our funds and would be the most affected. We were overweight in both companies due to their good fundamentals and reduced our position in Embraer slightly following this news. We will monitor the situation and developments in the coming period and act accordingly if necessary.   

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

According to a court ruling, Argentina must hand over its stake in the national oil company YPF to the plaintiffs and pay a penalty amounting to billions. The case relates to the expropriation of the former owners more than 10 years ago – the country is appealing. However, the ruling has unsettled investors, as potential payments through a possible bond issue would have a negative impact on the state's financing costs and currency reserves. These would fall even further, as there is hardly any fresh money available from the IMF and imports have risen recently. 

Overview of EM Companies

This time, our newsletter focuses on Braskem, the Brazilian chemical company which is the largest in Latin America and one of the largest chemical companies in the world. As we have already reported, the company is currently in a difficult situation. Competition is putting pressure on sales prices with low input costs and overcapacity.

The bonds came under renewed pressure recently as an experienced local investor, Nelson Tanure, intends to buy out the banks that have held these bonds since the Odebrecht scandal as part of the restructuring measures. Investors fear that if this goes ahead, Tanure will then submit a proposal to Petrobras, a minority shareholder with veto rights.  The bondholders could lose out here.

Given the current market situation in this industry, the company's capital structure is not sustainable unless improvements are made in the next two years. The outcome is currently uncertain. Further burdens are also looming because of the environmental disaster at the Maceió salt mine (Braskem's Maceió disaster costs rise to R$17.7bn | Business | valorinternational).

We were cautious and underweight in Braskem, holding bonds at low price levels (2050 maturity at 0.60 to the dollar face value). During the turbulent times, we reduced our underweight to benchmark level. The latest positive news, such as a government tax break that could bring the company up to 500 million US-dollar per year, caused bond prices to rise again.

This case is a good example of how active management remains important even when times appear easy – because at the moment, one sometimes gets the impression that all you need to do is buy bonds with a high market beta and everything will run smoothly and by itself.

Outlook & Performance

The market remains technically strong. Investors are hiding from volatility in US bonds in the high-yield segment or less liquid companies. BBB-rated bonds were also in demand, with risk premiums between rating classes becoming very narrow in some cases.

For this reason, we sold BBB-rated companies in a cyclical sector a few days ago and bought A-rated companies in a non-cyclical sector with a yield discount of 28 basis points. A few months ago, this discount was still around 80 basis points. “Up-in-quality” currently costs little, so we get lower credit risk in our funds as a bonus. This should keep us in calm waters over the summer months. 

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

Performance opportunities for the funds:

  • Continued historically high absolute returns
  • Negotiations are postponing tariffs, creating a calmer carry environment for the summer months  

Performance risks for the funds:

  • Unpredictable, capricious US tariff policy – see Brazil & copper
  • Risk premiums are too low (A-BBB and BB/B) – hardly any buffer to adequately compensate for lower credit quality

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 June 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 31.5.2025

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.