As we enter the final quarter of 2025, emerging market (EM) debt continues to demonstrate resilience against a complex global backdrop.

Despite rising policy uncertainty, geopolitical tensions, and evolving trade dynamics, EM debt has largely outperformed other fixed income asset classes so far this year.

With inflation trending lower across many EMs, central banks have begun adopting more accommodative stances, evidenced by widespread rate cuts and declining average policy rates.

Earlier concerns about currency depreciation, especially against a strong US dollar, had constrained easing in some regions. However, the dollar's weakening since early 2025 has alleviated those pressures, providing central banks greater flexibility. This shift has boosted the appeal of EM currencies and encouraged capital inflows into EM bond funds.

Developed market (DM) central banks have also continued to lower policy rates, providing EM central banks additional room to cut.

Our current investment approach is centred on capturing carry opportunities while remaining selective and risk aware. We see some value in EM exchange rates, particularly in Latin America and Central and Eastern Europe, where valuations remain compelling. We are also favouring local duration in markets with well-anchored inflation and attractive yield curves. Credit positioning is neutral, reflecting a disciplined stance amid tighter spreads.

While markets have become adept at tuning out frequent policy noise, especially from the US administration, we remain alert to the risk of sudden shocks. A sharp shift in policy or an unexpected geopolitical event could trigger a broad risk-off move, with EM assets likely to bear the brunt due to their higher sensitivity.