EM Fixed Income: Reviewing the global & previewing the upcoming idiosyncratic
The desk is positioning for a cautious outlook on emerging market (EM) fixed income, emphasizing the need to navigate the current volatility with a discerning eye. Per the full note source, the recent shifts in global economic conditions, particularly in the U.S. and China, are creating a complex backdrop for EM assets. The commentary highlights that while some countries are experiencing positive inflows, others are grappling with heightened risk perceptions, which could lead to divergent performance across the asset class. Notably, J.P. Morgan's analysts underscore the importance of idiosyncratic factors that are likely to influence specific markets in the near term, suggesting a selective approach to investment in this space.
What the desk is arguing
JPMorgan analysts Jonny Goulden, Anezka Christovova, and Gisela Brant review the latest market developments and their impacts on EM fixed income, focusing on the balance between global factors (e.g., Fed policy, China) and idiosyncratic stories. The podcast implies a nuanced outlook favoring selective exposure based on country-specific fundamentals.
Where it sits in our coverage
We do not have internal coverage data on EM fixed income generally or specific currencies. However, JPMorgan's view likely aligns with a cautious-to-selective stance, consistent with consensus for a moderately supportive global backdrop but diverging risks. Our firm spread would require internal data.
How other firms see it
No other firms are cited in the source. However, typical heavyweight banks (e.g., Goldman Sachs, Morgan Stanley) often have varying stances; without data, we cannot provide specific firmId comparisons.
Key takeaways
- 01JPMorgan analysts are reviewing global macro impacts on EM fixed income.
- 02Idiosyncratic factors are emphasized as key drivers for EM performance.
- 03Podcast was recorded on 23 October 2025, suggesting timely market insights.
Market implications
EM fixed income may remain sensitive to global rate expectations and China's growth trajectory; selective positioning based on country specifics could outperform.
Risks to this view
Unexpected hawkish Fed shift or China slowdown could weigh on EM; geopolitical risks remain elevated.
Hello, and welcome to our At Any Rate Emerging Markets Focus podcast, a place for us to discuss recent developments and key issues of focus in the Emerging Market Fixed Income Asset Class. I'm Jonny Goulden, Head of EM Fixed Income Strategy here at J.P. Morgan, and I'm joined by Aneshka Krista-Rova, Head of EMEA EM and LATAM Local Market Strategy, and Gisela Brand in the LATAM Local Market Strategy team, also both at J.P.
Morgan. Aneshka, Gisela, thanks for joining today. Hi, Jonny.
It's nice to be here. Thank you, Jonny. Great.
So, overall markets have been certainly in EM a bit sleepy in the last week or so. We are essentially flying without the usual U.S. data guides, given the ongoing shutdown. We've also had in EM investors coming back from the semi-annual Washington conferences, including our own, and we've got some half-term holidays as well.
So, all in all, a little bit quieter than usual. In today's discussion, we'll try and catch up on what we think are the key developments for EM markets in the last few weeks and ahead, and also focus a bit on how we think markets are set up and scenarios running into the important Argentina legislative elections this weekend. So, Jonny, let's start with the overall risk environment for EM.
What do you think EM markets are being driven by at the moment, and how are you looking at the different parts of the asset class? Yeah. So, I think EM is sort of trading with quite a strong global beta at the moment, i.e., we're being driven by what everything else is being driven by.
And sometimes markets have a single theme, and you can see very trending price action, either up or down. And at other times, there are lots of smaller themes and drivers which are running around without a single focus, and markets struggle a bit to find direction, and this has been one of those times. I think principally the lack of U.S. key data, employment, inflation, etc., given the government shutdown, gives that environment at the moment.
And I think once we start getting that back, we will be focusing back on the U.S. cycle, growth, inflation, Fed reaction function, etc. In the meantime, we have focus on a whole series of things, how long the U.S. shutdown will go on and its growth impact, U.S.-China trade negotiations, we have upcoming U.S. Supreme Court hearings on the legality of the tariff regime in the U.S., there's geopolitical developments in Israel and Gaza, also geopolitical developments around Ukraine and Russia, and additional measures announced today on Russia by the U.S. causing a spike in oil prices.
There's been earnings season much looked at, whether some of the cracks in credit markets in the U.S. are isolated, price action in gold, etc. So a whole series of things. It's meant a bit more of a range of our markets.
I don't think there is anything to change our overall stances. E.M. currencies look OK. E.M. rates may be somewhat less so, but still OK.
E.M. credit suffers the same issues of tight spreads, so it's just a valuations thing without having a lot of fundamental concerns. E.M. has made small gains in the last couple of weeks, mostly because yields are lower. Local market yields are lower following core.
FX has been generally flat. Credit spread is actually a little bit wider, but total returns eking out gains. I think once we get back to the U.S. data, we might expect a bit of downside temporary related to the shutdowns, but generally back to something which is bending, probably not breaking, given the offsets from tech CAPEX cycle and easier financial conditions as well.
I think that's probably an OK environment for E.M. local markets as we head into the end of the year. Right. Would you mention any key takeaways from the conference and sessions in Washington last week around the IMF conference?
Yeah. So for the unfamiliar, every six months the overall emerging market ecosystem decamps to Washington or sometimes some more exotic locations for conferences held around the IMF and World Bank meeting. So a lot of country specific sessions where we hear from ministers of finance, central bank governors, as well as other global speakers on overall market drivers, politics, political figures, etc.
So that was all happening last week. I think for us in our own conference and generally being in that environment, I think the big top down cyclical question which is in focus is really around the impact of AI related investment on U.S. and global growth and employment. And that was certainly the focus in a lot of those macro sessions.
Interesting if you think back six months and certainly 12 months, this was a very niche topic and even not spoken about at all. So it is very much front and centre, I think, of people's maybe medium term outlook at the moment. In terms of the overall mood on growth, I would say it's pretty flat, resilient but with risk.
So no real euphoria, I think, about the global environment or no real panic. I think people recognise that there are risks, but also that there have been some offsets there. On EM, more specifically, I think central banks were on the margin less dovish.
So, you know, disinflation process is ongoing but slower. They've also been cutting really for a couple of years already in total. So I think that that feels reasonable, but that certainly felt like that was, if you try and sum up some of the mood from central banks, that seems to be it.
And I think investor appetite for emerging markets seems to be in what I would say is a sort of a nice place, not euphoric, maybe quietly confident. And you're sitting on decent year-to-date returns. So EM local markets in particular are up 16% nearly year-to-date in dollar terms.
Inflows are coming back. The macro backdrop looks okay with tariffs being spaced out and carve-outs which have mitigated some of the worst fears. The dollar and US yields have both been falling.
So I think that's okay. But also importantly, I don't think EM is euphoric here. It's not really as an asset class been much on the global radar.
We have had about $25 billion of inflows since May into EM dedicated bond funds. But that has come after $159 billion of outflows over the previous three and a half years. So it's turned and we have been writing and you and I have discussed this in previous podcasts.
We do think that environment has turned, but it's really just beginning. So I think that's quite a nice place to be. There's a lot more to discuss on a lot of the takeaways and sessions.
So I would encourage those who can, clients to read the write-ups that we've published on that as well. But Aneshka, let's turn more specifically to EM currencies. And there certainly have been a few developments here.
EM currencies have generally stopped their appreciation against the dollar in the last week or so. We've seen a big move in gold lower, about 5%. And that higher gold price certainly benefited a few of our currencies in terms of trade impact.
Should we be worried about some of that price action? And maybe we should also throw in the jump high in oil prices today, given U.S. actions against Russia that also impacts a bunch of EM currencies. Are these sort of commodity price actions something to worry about?
Are you more worried or feeling OK about EM currencies here? Right. So let's just break it down.
It is interesting that on the index level, you're absolutely right. The gains for EMFX have stalled, maybe even for more than a week. But the underlying dispersion of those performances remains there.
So the theme that we've highlighted that's been working is the carry theme. And we had a little bit of a wobble in the carry theme in the first half of October. But since then, actually, carry currencies, if we split the space and are only along the kind of high-yielding parts of the space and funding in the low-yielding, has actually fully recovered and even grown further.
So on the index level, when we are mixing high-yielders and low-yielders, it looks flat. But actually, the kind of typical EM, the high-yielding EM, the carry currencies, that theme has actually performed still very strongly. When we look at why has that been the case, I think we still have that underlying theme that actually growth in EM looks pretty resilient.
We've not seen any big cracks. We've had upside surprises in several countries. Export momentum still looks fairly strong.
CapEx momentum looks fairly strong. So I think that underlying theme that growth is not cracking is still there. And we are also seeing it in equity prices.
Now, terms of trade, as you mentioned, has certainly been a big contributor to some of these patterns. We have several exporters that have benefited from the precious metals rally, from copper rally. And gold kind of really put in an interesting volatility this week.
Having said that, it looked really dramatic, the drop in gold. But it only took us back to the levels we were at only a week ago. Our commodity team here looks at this as only a consolidation within a bullish trend.
I think that's actually for the currencies we cover, we never fully price the precious metals rally. So the setback, I don't think it's very problematic. And with a bullish outlook, I still think we have a very good setup for commodity exporters.
What is important for me as well is that the commodity rally is not just one commodity. Gold is obviously attracting most of the attention. But the upside has been spread across other precious metals, copper, aluminum, and that obviously impacts a lot more in our space.
In terms of the energy, obviously, we had surprising news today, a shift in US policy that was unexpected. And oil prices are reacting. Having said that, again, when we look at, let's say, monthly pattern, we are only where we were two weeks ago.
So it does not look particularly dramatic from that perspective. What I would say is we still need to learn more details. We do not know enough about the impact.
But the patterns so far have shown that countries or the impact of these measures have never been full. Russia has always found some demand somewhere that has not been effectively constrained. And if that's the case, we probably still have fairly contained impacts on prices and therefore fairly contained impacts on our space.
Maybe turn to local rates markets as well. And that's a place where we've sort of been reducing our overall positive stance. So it's still positive but less positive.
And we've highlighted slower disinflation process in emerging markets as part of that as well. How is the growth data coming in globally and central bank reaction functions in EM to that? How have you seen that?
Are they supporting that overall stance and movement? All right. So for rates, as you mentioned, we've reduced our views a little bit less constructive.
Since we've made that change, core yields have moved lower and EM yields have followed, I would say, slightly underperformed versus core yields or what I would have expected as a BISA. Under that, there has so far been actually a lot of variation and very low cross correlations. We've had several central banks actually surprised.
On the hawkish side, we were expecting them to cut and they didn't. Some prime examples would be, let's say, Thailand, Indonesia. In some other countries, we've been revising policy rate forecast, pushing them further out.
Example would be South Africa. But actually, we had also dovish surprises. We had Poland cut, which we didn't expect.
We had a cut in Philippines, which we didn't expect. So, so far under the hood, there's a lot of differentiation, a lot of different themes and low cross correlations. But if I had to sum it up, I would say that the underlying two trends that we've noticed are still in place.
And those underlying two trends are that the disinflation momentum in EM has slowed. And again, there was actually inflation surprises to the upside and to the downside. But even through that volatility, I still think that judgment holds.
And the second one is that growth is proving more resilient. And again, I already covered parts of it, but I think that holds. That holds, we are seeing it in the forecast revision indices, and we are also seeing it in data surprises.
And if there is one theme, I think what I am noticing, it is the CAPEX momentum or the export momentum that is still holding up stronger than we would have expected by now. Great. Well, let's then turn from the macro down to the more idiosyncratic and to you, Gisela.
So, Argentina is going to be, I won't say at the centre of attention, it's already been, but certainly will be in the coming days as well with a legislative election coming up on the weekend. There's a lot been happening in the last few weeks, both in terms of announcements of support from the US, market reactions to that. Can you maybe just start, bring us up to speed with what's been going on and how do you think markets are actually set up here going into the election?
Yeah, sure, Jonny. So, the bad performance of La Libertad Avanza in the province of Buenos Aires elections a month ago created two main problems. The first one was that markets entered into a negative feedback loop where the FX sold off, it reached the top band, the central bank started losing reserves, that drove risk premium higher and that in turn further impacted the FX.
The second problem was that it put the focus again on politics and the risks of a more heterodox policymaking returning to power. So, the unprecedented support that we have seen from the US, similar to Draghi's famous whatever it takes, tackled the first problem and indeed it was the best searwidth breaker you could hope for. The support looked to address the two main drivers of that negative feedback loop, FX and credit.
It included direct purchases of pesos by the US treasury, a 20 billion swap line with the central bank, there's another 20 billion facility that's under discussion to invest in Argentinian sovereign bonds, and there's even FDI from the private sector that could be present if there's a good electoral resort. Market reaction has been mixed so far and volatility has been the norm. On the one hand, MBIG spreads have erased over half of the losses seen since the province of Buenos Aires elections.
Local bonds are generally stronger, also aided by the fact that the high interest rate policy was abandoned after the elections, but the FX has remained weak and it's around one percent away from the top band. The reason behind that mixed performance is that US support cannot really fix the second problem, the political issue, and that's why these elections are so important. It won't be so much about actual changes in the congress composition, as a famous one-third needed to sustain vetoes is likely to be attained, especially when you factor in the pro-party who's an ally of La Libertad Avanza, but market participants and also political actors will be looking at the results to assess how much support there is for Mille's reform agenda.
And one last comment, today we had confidence indicators. These have done a very good job at predicting waning support for Mille ahead of the province of Buenos Aires elections, and the prints that we had today for the month of October showed a good print, a solid rebound, and it was not only in the interior of the country but also in the great Buenos Aires area, so it's been broad-based across the country. Great, thank you.
So, in terms of looking ahead, Guy, to the next few days, what do we expect in terms of timing? What do you think the markets will be looking at? Which numbers will they be focusing on in terms of results and trying to gauge reactions on the back of where markets are going to really, what numbers are they going to really focus on?
Yes, so I think there are two parts to this question. The first one relates to the election day and the immediate reaction to the actual results. The second one is about the days and the months after the election.
In terms of timeline, we should be getting results on Sunday, late at night. It is worth caveating here that there is a certain level of complexity in even understanding what these results will mean because there's a high level of fragmentation, there are many parties competing in only a few provinces, and many parties that cannot be so easily classified into either the more extreme Kirchnerism or the more in the center Peronists. Having said that, I would say 35% is the key level to watch for if La Libertad Avanza secures around 35% of the national vote and manages to win around five to six provinces.
That could be seen as relatively positive. It's a reasonable base case and should allow for some risk premium compression. Anything above that would be considered quite bullish.
Anything that's closer to the low 30s with defeats across several provinces, that would be considered a more negative scenario by the market. The composition of the opposition votes is also relevant. Anything that means a weaker election for Fuerza Patria, so the Kirchnerism, that can be perceived as a rejection from the population of more extreme policies.
And anything that's better results for the more rational type of opposition, that would be considered positive and better for cooperation after the elections. For the days after, the main question we have been getting is what will happen with the currency. Can there be any changes to the FX regime?
And if so, what would be a reasonable level for the peso? I'm thinking about FX valuations is already challenging in normal circumstances. So in Argentina, imagine it's even worse.
We have been somewhere in the middle. On the one hand, there are arguments that would suggest there is not an impending need for a devaluation. There has been already significant dollarization in the run up to the election, either in the form of futures hedging or spot purchases.
We have seen purchases at levels similar to the aftermath of the 2019 primary elections. There is also no balance of payments issue. There is no big foreign position that is looking for a way out.
There has already been a relevant adjustment in the real effective exchange rate. It's already 30% above this year's lows. And if you look at the blue chip swap gap to the official FX rate, it's around 7%.
Back in April, when capital controls were lifted and the peso started to float, the equilibrium effects ended up being somewhere between these two markets. Having said that, there are some vulnerabilities to the current bond system. And we have seen countries with much more stable economies can very easily see external shocks resulting in FX moves of 5%, 10% or more.
And Argentina lacks that flexibility currently. So we don't rule out modifications to the framework, but these are not necessarily going to happen on day one. And a final factor to consider here is reserve accumulation.
If you take the IMF targets as a guide, Argentina would need to buy on average $1.2 billion per month starting November until the end of next year. So in a market where monthly sales of dollars have averaged $5 billion per month, that's a relevant amount. To the extent that more dollars can be obtained via the financial account with U.S. support potentially helping in this regard, the peso market should see less pressure, but we'll have to wait and see.
Great. We'll hold on tight as we go through the weekend and see where we are on Monday. Well, that brings us to the end of this J.P.
Morgan At Any Rate Emerging Markets Focus podcast. Thanks to you, Aneshka and Gisela for joining today. And thank you all for listening.
And we hope to have you back again with us for the next one.
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