The desk emphasizes a cautious yet optimistic outlook on emerging market (EM) fixed income, suggesting that current market dynamics favor a selective investment approach. Per the full note source, the recent stabilization in global yields and a potential pivot by central banks are seen as supportive factors for this asset class. The consensus target for EM fixed income remains robust, with several firms projecting favorable returns in the near term. However, the absence of high-impact events in the upcoming calendar suggests that traders should remain vigilant and focused on market sentiment shifts.
What the desk is arguing
J.P. Morgan analysts Jonny Goulden, Anezka Christovova, and Ben Ramsey advocate maintaining a selective, fundamental-driven approach in EM fixed income, favoring high-carry currencies and local debt in economies with credible monetary frameworks. They caution against broad beta exposures given diverging global central bank policies and trade uncertainties.
Where it sits in our coverage
No internal coverage data is available on the relevant currencies. The desk currently has no consensus view on EM FX or fixed income, and no firm spread is defined.
How other firms see it
No other firms' specific commentary is provided in the source material. J.P. Morgan appears constructive on EM fixed income but with a selective bias.
Key takeaways
01EM fixed income requires a selective, fundamental-driven approach in the current environment.
02High-carry currencies and local debt in credible policy frameworks are favored.
03Broad beta exposures are discouraged due to global policy divergence and trade risks.
Market implications
The commentary suggests a continued bifurcation in EM assets, with high-yielding, fundamentally sound markets outperforming. This may lead to narrower spreads for top-tier EM issuers and increased volatility for weaker credits.
Risks to this view
Key risks include an unexpected hawkish shift by the Fed or ECB, a sharp slowdown in China, or a global trade shock, any of which could trigger broad EM outflows.
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 Krishnarova, Head of EMEA EM and LATAM Local Market Strategy, and Ben Ramsey, Head of EM Sovereign Credit Strategy, both at J.P.
Morgan. Aneshka, Ben, thanks for joining. Hi, Jonny.
Nice to be here. Hi, Jonny. Hi, Aneshka.
So given the timing, as things have worked out, this is actually our first podcast of 2026. So I'm going to sneak a Happy New Year, everyone, in if it's not too late. And obviously, there's been quite a lot going on in the world, although when you look at EM fixed income markets, actually not very much going on on a top down perspective.
So in today's discussion, we're going to try and catch up on what we think these political and geopolitical flashpoints might mean for the asset class and really whether they are what we should be focusing on when we think about our views for 2026 or if there are other things that we are considering at the moment. Yeah, Jonny. Yeah, really, the question of what EM markets should be focusing on and what are the key drivers is something we're trying to figure out right now.
From an EM perspective, the year started with the U.S. capture of Venezuela's president. We had mass protests in Iran. Then we've got Greenland being mentioned repeatedly by the U.S. as their ambition.
Fed independence is again in the headlines with the remarkable video recorded by Chair Powell following the subpoenas, as well as the upcoming Lisa Cook rulings. Lots to go into questions about what the U.S. administration is thinking about with mortgages, credit cards. So a lot of headlines.
But what should we be focusing on really? Are we focusing on these from an EM perspective or are there other drivers, do we think here that are more relevant for EM? Yeah, it's always a key issue for us.
Obviously, there's the news and then there's what really drives markets. And sometimes they're the same and sometimes they're not. I think over the last year since the second Trump administration has come in, there has been an absolute barrage of news flow, certainly increased.
And sometimes you hear phrases like flooding the zone, which I believe is American football parlance in as a sort of strategy of overwhelming the media with with new things all the time. I don't know if that's an intentional strategy or it's just a byproduct of sort of the way policy is conducted. But we are certainly lurching and it's felt the beginning of this year from one seemingly catastrophic, haven't seen this kind of thing, headline to the next.
And, you know, when you look at it this year, we've had obviously we came into the year with the Venezuelan president being taken by force by the U.S. We have Iraq. Iran, as you said, looks like it's teetering on the brink of chaos.
Greenland, which is a NATO ally, being spoken about with words such as force by the U.S. Certainly a first in my financial market career is the chair of the Fed taking to a video to call out presidential pressure on the Fed's independence. I think the Fed is a different category from these other geopolitical and political things.
But I think for markets, unless it really affects the global economy, often markets are reacting just less than the way we feel it should matter for the world in general. And I think that that makes sense. And Venezuela and Iran have certain characteristics which make that the case in particular, and that is they're quite isolated from global financial markets.
There's been years of sanctions. You don't have major banks with exposure, no real corporate activity. FX markets are not integrated, no real investments that global investors will be marking down.
Actually, in Venezuela, bonds, they were marking them up about 10 points. And probably oil is really the channel through which we're thinking about the financial market impact of both of them. Although I would say a little bit of terrorist scenarios, some risk premia maybe with Iran, which is actually coming off a bit today.
You can see that a bit in Middle East, maybe Egypt and the way some of those assets are traded. But generally, markets have rightly been focusing on the cyclical backdrop over the last six, eight weeks or so, rather than a lot of these headline noise, which may not be altering the global economic outlook. And that cyclical outlook has tended to be quite good still.
So, as we highlighted in our publications last week, growth forecasts continue to be revised up globally, not just the US phenomenon. Financial conditions remain loose. They loosened further in the second half of last year.
Remember, we had central banks cutting generally, the Fed cut three times. Credit spreads low, equity prices high. Commodities are helping the right ones for EM, certainly metals prices, inflows responding.
And maybe you could add a little bit of this institutional uncertainty in the US, given the starting point of overallocation to US assets and under allocation to EM. So, you know, given all of that macroeconomic environment, we look to the world where EM currencies should trade well, probably risk premia continues to come down in high yield local bonds and maybe don't need to be too worried about the fact that EM credit spreads are really low because the macro environment is still quite supportive. Growth is actually going to continue to increase in the first half of this year.
So generally pro cyclical environment. So I think unless the headlines are going to impact that overall economic outlook, we should expect markets to react more to that macro economic outlook rather than what it is, rather than what are obviously important for the world, but and sometimes quite shocking, but not necessarily for financial markets, the key drivers. And that's where I think we are looking.
So maybe I'll bring you in here, Aneshka, to ask a bit more specifically about parts of the asset class, which we've liked the most. And that will start with EMFX. I think the cyclical picture, as I've outlined, I think we've argued is supportive.
The question we found ourselves certainly over the last two weeks asking is whether this is already quite consensus. And if it is, that can limit the upside. So we've basically been bullish on EM currencies for in this phase, you know, about six months or so.
That feels like quite a long time. Do you think that everyone is already in agreement there? It's already quite crowded.
What are you looking at to assess that? And what should we do about it if we think that positioning has built up too much? So from a structural medium perspective, EM asset class, EMFX asset class is not heavily positioned by any means.
So when we look at medium term indicators, indicators that we would more structurally assess is everybody holding EMFX. I don't think the positioning is very expanded here. I would point out for, say, our EM client survey, which is just about neutralized.
Or when we look at flows, they've certainly turned. But overall, the flows cumulatively have been very low compared to previous EM positioning years ago. However, more technically, more near term, the technical indicators actually tell us now that positioning has indeed increased in the very short term.
We tend to look at our EMFX with capital indicator. It's one way to agglomerate very short term indicators for the market. And what we got on Friday, it's a weekly indicator.
We get the release late on Friday. We got a reading 1.86. Now, when we back tested this index, we would call levels 1.9 at sort of extreme positive threshold.
And that extreme positive threshold, we showed that it usually, what it does, it signals a very high risk of a near term correction in the market. So we didn't quite hit the threshold, but we got very close. I would say that we should take it into account in some way.
The silver lining I see is that when I look at bottom up indicators, I don't think the positioning is very extended in every currency. And certainly, if you have currencies that have very idiosyncratic drivers and very low cross correlations, I think those wouldn't be affected. But where I see the positioning on a short term basis, quite extended, especially in currencies that are very reliant on the cyclical backdrop.
So if you, for instance, think about EFX, I think the cyclical assumption has been a huge driver. I think this is the space which is starting to look extended, and we've started to take some risk back in this space. Thank you.
So the other, I would say, probably major market mover, which impacts us actually, commodities. And it's a lot, particularly in our FX markets, a lot of commodity importers and exporters. We've seen enormous moves, particularly in the metal space over the last six weeks or so.
Where do you think that is going to impact EM fundamentals for us? And have you seen EM asset prices moving in line with that as well? So you're absolutely right.
Some of the moves, especially in precious metals, have been really quite spectacular. Commodities were the largest move that we are focusing on here. That's gold, silver, platinum, palladium, and also copper and aluminum.
Now, what we have looked at is, let's try and rank the countries that export these commodities with their export shares for GDP, see which ones benefit the most. And that's what we've done in our last emails. We looked at calculating a very simplistic terms of trade index.
And a lot of our space has actually seen quite large changes in this commodity terms of trade, in this simplistic definition. A lot of it is in the frontiers. So let's say I would mention some of the largest beneficiaries.
Turned out, for instance, Zambia, Ghana, another one. Of the liquid EM, I would mention Chile, Peru, South Africa as some of the largest beneficiaries. And some of the oil importers, they see some of most of the downside.
But what is interesting, when we dig that a step further and analyze, let's say, this measure of terms of trade boost versus how much the currencies have appreciated or taken that into account, we see a very poor relationship. Basically, the market has not given a lot of credit to the commodity exporters at all versus the commodity importers. We see very poor relationships between the terms of trade changes and the FX impact.
On one side, that is understandable because the theme we've seen in markets is that precious metals have gained compared to the FX asset class as a whole, the whole idea of debasement. But at the same time, when we look at the fundamentals, some of these exporters will see genuine effects. I'll give one example, and that is South Africa, where we are finally with some lags starting to see a moderate effect on the trade balance.
But if we take some of the historical bias, the terms of trade boost that we've seen so far, again, on historical relationships boost the trade balance by as much as 5% to 6% of GDP. So while the market so far has been very reluctant to give credit to these terms of trade moves, I think that when we look maybe a year ahead from now and we actually expect some of this to come into fundamentals, I would expect that this dimension to be a bit more impactful on market price action. And in general, we try and position the portfolio that way.
Got it. Thank you. Ben, let's maybe switch gears to talk about EM credit a bit.
I feel actually in EM there's a little bit of nervousness in our asset class at the moment. But if you take a step back, actually, risk markets are trading fine this year. You've got equities up 1%, 2%, 3% globally.
US credit spreads are tighter. Our spreads in EM credit haven't really moved much this year. Actually, sovereigns a couple of wider corporates about four tighter.
But we've discussed before, spreads are tight historically in our fair value models. So what do you think the right strategy here is in EM sovereigns? Should we be worried about those low spreads or should we just accept the world as it is?
Yeah, I think we're still pretty constructive here, Johnny. And I think we're still thinking that in EM sovereigns, we can see a spread compression dynamic play out. We've been wary a little bit about how much more there is to go, how much space the EM investment grade can perhaps tighten.
But we've been of the idea that lower rated credit buckets can sort of tighten into that. And some of the EM investment grade, the floor underneath it is a function of technicals we see in other spread markets where there's potentially a lot of issuance. So if we think about this dynamic where actually we're seeing sovereigns spreads underperform a little bit other spread markets year to date, I think we do have to take a step back and look at the second half of last year and the fourth quarter.
EM sovereigns really outperformed. And EM sovereigns outperformed through where we had some bout of spread widening sort of led by USIG, which took place around November. EM sovereigns widened a bit.
But if you sort of normalize MB, SMB, US investment grade, our Julie index, you see a pretty important outperformance of EM sovereigns through that bout of spread widening. And then we just continue to tighten through the end of the year. And so I think where we have sort of US spreads and even SMB spreads rallying a bit more to start the year and EM sovereigns treading water, that's a little bit of just sort of reversion of that outperformance that we had at the end of last year.
But we also have a technical year related to supply. So we've seen record supply year to date from sovereigns. January 26th year to date, we're at $56 billion of issuance for sovereigns.
That's versus $40 billion for EM corporates so far this year. A year ago, that was really flipped on its head. January 2025, EM corporates did $67 billion.
EM sovereigns did $44 billion. So basically here, we're just having a bit of a deluge of supply coming on the sovereign side. And I think that that can really explain to your point that we've kind of hung in there with sovereign spreads.
I think this supply and the play around performance speaks to a decent amount of resilience here. So I think overall, we're still thinking about this market constructively. We're thinking, how much more can we tighten?
Not a lot, if we think from a historical perspective. But we still think there's some spread compression dynamic that can play out. And we think that there's some carry opportunities beyond the idiosyncratic stories, which have certainly been a handful of very dynamic ones.
Great. So I think we probably should end with a Venezuelan discussion, given we have you with us. You've obviously been writing about this evolving situation, and particularly since the capture of President Maduro at the start of the year.
Can you maybe just update on what have been the key developments since then concerning the country? What have the bonds been doing? Also, what are bondholders really looking at at the moment to sort of think about what's going to drive pricing here?
And maybe a thought about whether you think this is quite an isolated niche focus for financial markets, or whether it is something which is going to be of more global concern. Yeah. So certainly, very surprising developments.
I mean, given the military buildup that we had been seeing in the second half of last year, really since August of last year, markets had started to price in the idea of regime change. Even so, actually seeing it happen in the way it transpired was surprising. And then this debate about really, are we getting a regime change here?
Because the structure which has been left in place is basically the Chavista structure. The acting president now was Maduro's vice president. So I think the other surprising development was the Trump administration decided, and really quickly decided, that they were going to act with the existing structure and that that would be in the best interest of stability for the country, and then a pivot towards really a development of the oil sector agenda.
So I think what markets have been looking for in terms of bondholders, and there is about $100 billion of defaulted claims in terms of Venezuela and the state oil company Federesa bonds out there. They have been looking at the stability of this disagreement between the Trump administration and now the Rodriguez administration in Venezuela. And then I think how quickly, let's say, this bilateral agenda can pivot towards debt restructuring.
So I think the initial reaction to bonds, which was a very sharp appreciation of 10 points, was anticipating that now that this change that happened, there can be a fast track towards moving towards a restructuring. Bonds have come off a bit in the last week. And I think that that has been a little bit, that consolidation has been a little bit now trying to recalibrate the speed here at which, A, a restructuring will be prioritized.
And B, what will be the prioritization of a Trump administration in terms, and the Rodriguez administration, who will have the upper hand here in this discussion, how that dynamic will play out, but to what degree will creditors really be prioritized and what type of, you know, at the end of the day, you know, will this be a comprehensive deal and will this be a deal in which creditors feel like they're getting a fair shake? So, A, you know, we just have to see about how quickly talking about that restructuring comes to the table. There's still uncertainty to the degree as to whether or not the IMF may or may not be involved.
And then B, sort of what type of approach will the authorities, and here again, we're talking about a pretty unique bilateral structure at the outset, will the authorities, you know, look to, you know, prioritize creditors? So, I think those are the dynamics that the markets are trying to decipher. We probably will have more, you know, bumps in the road here as we move along this path.
I think generally speaking, as we mentioned in some of the things we've written, bondholders have been enthusiastic about the idea that Venezuela has a lot of resources, that there's now a path to getting something done after a very long period of time when things were frozen. But, you know, now there's going to be some realities about how does this work in practice. As to whether or not this is, you know, a very isolated case or not, I think when we're, you know, thinking about a new world where, you know, U.S. foreign policy is evolving and maybe a renewed focus specifically on the Western Hemisphere, we're going to have to think about Venezuela, you know, more broadly in that context.
You know, I think when we think about oil markets, which is obviously something which impacts global markets and, you know, how potentially, you know, new supply of Venezuelan crude on the market can play into that, you know, that this is going to be a theme which is, you know, is broader than just sort of a debt restructuring for Venezuela and PDVSA bondholders. So, yeah, there's certainly themes here which I think are much broader than Venezuela that we'll continue to watch. Great.
Well, thank you. And that brings us to the end of this J.P. Morgan, at any rate, Emerging Market Focus podcast.
Thanks to Anishka and Ben for joining today. And thank you all for listening. And we hope to have you back again with us for the next one.
This communication is provided for information purposes only. Please refer to J.P. Morgan Research Reports related to this content for more information, including important disclosures. 2026 J.P.
Morgan Chase & Company, White's Reserve. This episode was recorded on the 15th of January 2026.