EM Corporate Bond Newsletter

Emerging Markets Overview

The Chinese leadership is attempting to shore up the fragile domestic demand with additional subsidies. However, the recent Golden Week holidays did not bring about any discernible turnaround in consumer sentiment. The meeting between Xi Jinping and Donald Trump also remained largely symbolic and served primarily to maintain relations at a workable level despite increasing strategic competition. At the same time, the EU is stepping up pressure on China and is considering measures against countries and companies which, from a European perspective, operate using unfair or unlawful methods. These could go as far as restrictions on access to the European single market.

Thailand recorded foreign investments of more than USD 43 billion in the first half of the year, including from Singapore, the UK, Japan and China. Of this, around USD 33 billion was accounted for by data centre projects. This supports a broader diversification of the economy towards electronics and semiconductors and, in the long term, reduces dependence on the tourism sector.

In Mexico, there are high expectations that a trade agreement with the US will be concluded before the US elections which could, amongst other things, provide for lower tariffs on cars, steel and aluminium. Remittances from abroad remain at a high and stable level, whilst private consumption is suffering from economic uncertainty.

On a positive note, vacancy rates are falling and rents for industrial property remain stable. The recent weakening of the currency and the associated expectations of improved export profitability are likely to have contributed to this. Finance Minister Amador announced investments of more than USD 300 billion by 2030 in collaboration with private investors, particularly in the energy and infrastructure sectors. Furthermore, I Squared Capital (a global private equity and infrastructure company) has been mandated to invest a portion of pension fund assets in these sectors.

In Brazil, Flavio Bolsonaro emerged as the favourite for the second round following the elections on 4 October. President Lula came under pressure during the election campaign, as the economic situation for large sections of the population had improved only marginally compared with four years ago. Bolsonaro’s party now holds 121 of the 513 seats in the Chamber of Deputies and 28 of the 81 seats in the Senate. However, a three-fifths majority is required for constitutional amendments – and thus also for far-reaching adjustments to constitutionally mandated government expenditure. On certain conservative issues, such a majority could theoretically be achieved with the support of other small and medium-sized parties. The financial markets reacted very positively to the election result, pricing in the expectation that a new government could reduce the budget deficit through structural reforms and possible constitutional amendments.

The Brazilian central bank cut its key interest rate by 25 basis points to 13.75%, citing weak economic activity and stable inflation. Against this backdrop, we increased our exposure to companies that could benefit from falling local interest rates, including the hospital operator and insurer Rede D’Or.

In Peru, the key interest rate remained unchanged at 4.25% for the twelfth consecutive month. According to the central bank’s assessment, the exceptionally strong El Niño phenomenon is likely to weigh on GDP growth by around one percentage point in 2026 and 2027. The government presented a supplementary budget of more than USD 2 billion to cushion the economic impact of the weather phenomenon.

Foreign investors significantly increased their allocations to local Chilean bonds. This forms part of a broader diversification strategy aimed at spreading holdings that have hitherto been heavily concentrated in US bonds. The key interest rate in Chile remained unchanged at 4.5%. President Kast plans to invest around USD 1.5 billion in creating some 100,000 new jobs, including in infrastructure and the public sector to reduce unemployment and the associated social discontent.

Fitch confirmed Guatemala’s rating at BB+ with a stable outlook. A per capita GDP that remains low by international standards, as well as institutional weakness, has so far prevented a rating upgrade to investment grade, although some macroeconomic indicators are already significantly stronger. Remittances from abroad have recently declined slightly. Nevertheless, the central bank expects a new record figure of USD 26–27 billion for 2026. Economic activity remains robust, most recently at 4.4%, whilst inflation rose from 2.7% to 3.4%.

Toyota has announced a USD 1.4 billion investment in Zárate, Argentina. This is the largest investment of its kind in the country to date; it is also expected to create more than 3,600 new jobs. Such investments are particularly important for Argentina outside the energy and mining sectors, as they can contribute to a broader and more balanced industrial structure. The IMF has also recently emphasised the importance of greater diversification.

Note: The companies mentioned in this article are selected for illustrative purposes only and do not constitute an investment recommendation.

S&P confirmed Panama’s rating at BBB- with a stable outlook, citing in particular the high economic growth of more than 8%. Meanwhile, another source of uncertainty has arisen for First Quantum: a government commission recommended that the controversial Cobre Panamá copper mine shall be brought back into operation, albeit with the aim of enabling the financing of its orderly closure. President Mulino made it clear that this was not yet a final decision but merely a recommendation.

Overview of EM Companies

Casino operators in Macau have recorded only modest revenue growth for several years. Following the widening of risk premiums in recent weeks, we have reduced our underweight position in this sector.

The Turkish utility company Zoren is heading towards a debt restructuring. Bond prices fell gradually from around 74% to around 55% most recently. We were already underweight and had sold our remaining positions in full at a price of around 62%.

Other Turkish utilities and industrial companies also came under pressure last month. By contrast, we benefited from our strong positioning in Turkcell, as the issuer performed significantly more stably, as expected.

In Argentina, the portfolio benefited from our high exposure in the YPF-covered bond with a 9.5% coupon maturing 2031. This bond outperformed other Argentinian corporate bonds – some of which had longer maturities – by around 1.5 to 2 percentage points.

In Brazil, we significantly reduced our position in Petrobras after the bonds had previously performed very strongly.