BlackRock to JPMorgan bet on EM as turmoil seizes global bonds

As government bonds from major economies buckle, funds including those run by JPMorgan Asset Management and BlackRock have found an unlikely edge in emerging markets.

Government debt from the US to Japan has tumbled as energy-driven inflation and fiscal concerns revive the prospect of higher interest rates. Yet much of the developing world has escaped the worst of the selloff, helped by inflation that remains relatively contained, already-restrictive monetary policy and stronger fiscal positions in some countries.

High real interest rates and stronger fiscal positions in parts of the developing world are offering investors both income and a place to ride out volatility shaking the biggest bond markets.


The recent global bond selloff "makes EMs more attractive as they act as an income diversifier," said Pierre-Yves Bareau, chief investment officer for emerging-market debt at JPMorgan Asset Management.

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Local-currency emerging-market bonds have returned more than 3% this year even as US Treasuries and European peers have lost 0.6%, according to data compiled by Bloomberg.

"It speaks to the asset class's resilience," said Elina Theodorakopoulou, a portfolio manager for emerging-market debt at Manulife Investment Management, who sees the recent selloff as "a relative opportunity for global emerging market debt."

In contrast with developed market peers, emerging-market central banks have more room to chart their own course. Inflation across developing economies is running at an average 3.8%, according to JPMorgan, roughly a third of the level during the 2022 shock. The bank estimates policymakers have about one percentage point more cushion to absorb price pressures than they did four years ago.

That flexibility is already on display. Brazil, Turkey and Hungary cut borrowing costs in August, while South Korea and the Philippines tightened. The Czech central bank held rates after raising them in June.