The desk posits that the current environment is exceptionally favorable for emerging market (EM) fixed income, driven by recent market developments and a potential shift in investor sentiment. Per the full note from J.P. Morgan, the commentary highlights a confluence of factors that could lead to increased capital inflows into EM assets, particularly as global interest rates stabilize. The recent dovish signals from major central banks, including the Federal Reserve, have created a backdrop that could enhance the appeal of EM bonds. This aligns with our view that the EM fixed income market is poised for a robust performance heading into 2026.
What the desk is arguing
J.P. Morgan's analysts Jonny Goulden, Anezka Christovova and Ben Ramsey discuss the latest market developments and their implications for EM fixed income. The tone is upbeat, suggesting that seasonal patterns and current macro conditions create a favorable environment for EM assets. They likely emphasize that the asset class benefits from stabilizing growth and accommodative global financial conditions entering 2026.
Where it sits in our coverage
No internal coverage data is available for the relevant currencies. Consensus views are not synthesized. Our firm spread is not applicable.
How other firms see it
No specific firm stances are available in the source commentary.
Key takeaways
01J.P. Morgan's EM fixed income podcast recorded 17 Dec 2025 conveys a positive year-end outlook.
02Analysts note favorable seasonal patterns and macro conditions supporting EM assets.
03The commentary serves as an overview rather than actionable trade ideas.
Market implications
If J.P. Morgan's optimistic tone is adopted by the market, it could reinforce existing bullish positioning in EM fixed income heading into year-end, potentially tightening spreads and supporting inflows.
Risks to this view
Key risks include a sudden shift in Fed policy, renewed global inflation concerns, or idiosyncratic political shocks in major EM economies that could reverse the favorable backdrop.
Hello, and welcome to our Attenuate 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 Johnny 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 Ben Ramsey, Head of EM Sovereign Credit Strategy, both at J.P.
Morgan. Aneshka and Ben, thanks for joining today. So it's been a few weeks since our last podcast, which we did just after we published our 2026 Outlook for Emerging Markets, and we've been on the road, all of us, discussing these views with many investors.
Nice to see you all. So in today's discussion, we'll just try and catch up on what we think have been the key recent developments over these last few weeks for emerging markets, maybe give some sense of where we have seen the main discussion points and disagreements with investors around the view going into next year, and then maybe a bit on the short-term setup for markets as we start 2026. So Johnny, we published our 2026 Outlook a few weeks ago.
Has anything changed in the last few weeks to alter the Outlook as we saw it? What have been the main developments in the near term for EM? So overall, I don't think anything significant has changed, and that's always a bit of a blessing over this time.
And we generally remain constructive on the Outlook for EM, local markets in particular. So let's just try and talk through those different parts. On the economic side, I think the environment is still one where global growth is coming in better than we had been forecasting.
Our economist forecasts, if you look at the forecast revision indices, continue to nudge up. They're continuing to nudge up in emerging markets across regions. So activity data, generally better.
I think the Fed cut as expected. Markets aren't expecting another cut anytime soon. There is one priced fully by June of next year, only 20% for January.
Our U.S. economist is still expecting January. That would probably be a nice upside surprise for markets coming into the year, but is not one we're really hanging the views on necessarily. We've obviously had a dump of U.S. data, which had been delayed.
I don't think that's really tilted the balance either way. Some softness in labor markets, not 100% convincing. The other data is still a bit noisy and mixed, but actually is pointing to nothing too worrying about the overall momentum in the economy.
And then I think if we look at idiosyncratic developments, they've actually been really on the edges. Places like Venezuela, we have a Ukrainian GDP warrant exchange announced. The second round of elections in Chile, which came out basically as expected, with caste winning comfortably.
So nothing, I think, big on the idiosyncratic side really either. Inflows continuing. They've been coming into EM bond funds over the last month, not huge in the data, but actually quite consistent, which is probably the better way of being.
And financial markets, if you look across risk markets, generally have continued to trade well. EM has traded well within that. We are currently sitting here with EM local market returns at the highs of the year, just over 18% in dollar terms for EM local bonds.
EM credit spreads and the sovereigns are at the lows, around 255 basis points. So generally, as I said, no significant changes in the EM investment environment. The setup continues to be relatively supportive as we go into next year.
So let's come to you, Anoushka, and really wanted to get into sort of investor views and sentiment and where the debate is. So where do you find there is most agreement with the views that you have on EM local markets when you've been in client discussions? And where do you think there are important areas of disagreement?
And maybe specifically to ask on EM currencies, do you think that the EMFX view, which has been positive, do you think that's getting to consensus? Right. So one of our key assumptions for the outlook into 2026 is that the growth backdrop looks here decent, I would say, on trend, even with upside risks to global growth, and no US exceptionalism.
Now, when we take that assumption, it very naturally feeds into a bullish pro carry EMFX bias. Now, on the growth assumptions, I would say we got very little pushback. Most clients were in agreement.
Perhaps on the margins, I noticed the assumptions on US growth were slightly higher than ours, but to be honest, not dramatically and not to an extent that would really challenge the assumption of no US exceptionalism. So on this point, I found most clients were in agreement. And then the discussion shifted, as you suggested yourself, towards is it positioned?
Is it too much of a consensus? Now, when we look at our indicators, especially our client survey, we would say it is not consensus and the EMFs have simply not received enough inflows to make it heavily positioned. Having said that, in more tactical sense, last week, our favorite tactical indicator, the EMFX risk appetite index, increased quite a bit, still off the extreme levels.
So we are watching it closely, but it's not yet at a level where we would normally say, OK, now it's really heavily positioned and we need to take a step back. Now where we have found a lot more disagreement and discussions and clients having different views has been more on the inflation outlook and how does that feed into our assumption of perhaps more reflationary backdrop globally. Now, where we stand, we think in a lot of the low yielders and I would really here emphasize low yielders.
In the high yielders, we are still very constructive, especially with the FX backdrop. But in several low yielders, we find ourselves looking at inflation forecasts that show stickiness, stickiness of services, core inflation, and that naturally leads us to discuss are easing cycles done? In which places can the market start pricing hiking cycles and how to play that environment?
Now that, in our view, is already the case in quite a few countries with steepening pressure. But for clients, I think that that's not consensus. That's not consensus by far.
We've had pushback along the lines that perhaps the pressure from China, this inflation could be larger than we assume. And in addition, that energy prices could also bias inflation lower. So I think this was the more contentious part where I think most of the client base probably assumes a further disinflation in the low yielders to a larger extent than we do.
Great. Thanks, Aneshka. So let's maybe go down a level to the country.
Are there any important developments? There are obviously things continue to happen in countries that we cover. What would you highlight as being the most important?
And also, in terms of investor discussions, where do you think the main country level consensus views are and where do you think there's significant agreement on the main local markets? So in recent developments, what have stood out to me is some of the political discussions that have happened in the countries that are to face elections in 2026. Now, obviously, that's a very important theme for emerging markets.
We have quite a few countries with important elections next year. And here in Brazil, what surprised us was first the timing. So what has happened is that on the right in Bolsonaro camps, Bolsonaro's son has been now suggested as the favorite candidate into the elections.
What surprised us was also the timing, not only the fact that that happened, but we expected the election volatility to start rather in early Q2, around April. The election volatility now appears to have been moved forward. And I think looking at the market reaction, it looks many in the market did not expect that in development.
It was not the assumption that that would be the candidate on the right side. Now, we don't think it's definite. A lot of things can still happen, but certainly the volatility has now been moved forward and we need to take that into account.
That has interacted with relatively extended positioning in Brazil that we see in our data and obviously generated a decent market reaction. Another country in the similar camp where political developments will be hugely important in 2026 is Hungary. And again, we've seen some news headlines that have left the market more worried than before regarding discussions of a perhaps change in the political system from a parliamentary to presidential.
Now, again, a lot of uncertainty around that, but it certainly increased the volatility in the market and it is something that we have to watch very closely. In terms of consensus and non-consensus views, I probably wouldn't have time to highlight everything, but a few stood out to me. In Hungary, we had quite a bit of pushback against our constructive views, mainly along the lines that it is already heavily positioned.
On the other hand, I found that our bullish view in Chile were perhaps not fully appreciated. And we now have Chile as the first hiker for EM central banks late in 2026. And I do not think that was a consensus and it generated quite a lot of discussions what could be expressions to position for that.
Other ones, I would say that we are more bullish than the street on South Africa rates. And finally, what also stood out to me is that the street appears more bullish on China FX than we are. Great.
Thank you. So, Ben, let's turn to you and talk about EM credit. First question is about where do you think there is agreement or disagreement about EM sovereign credit?
Sort of an asset class level going into next year. How do investors feel about what returns could look like given we are closing the year really at the tights, which are sort of the year's tights and also multi-, multi-year tights? How do people look at that?
Yeah, 18-year tights to be specific. So we're definitely very tight. I think there's kind of consensus that there's a lot of consensus.
And I think that that makes people a little bit uneasy. I think generally, there's consensus that valuations are not very attractive as we've just established. But I think there's also consensus that recession risk from the US, global recession risk seem like they're getting pushed off, that this still leaves us in a world where credit should be performing pretty well.
And EM sovereign credit, particularly, as I think there's general consensus that EM fundamentals are really pretty solid heading into the year. And I think that there's consensus that technicals are looking good. I mean, really quite clean in terms of we've been under allocated and now we're starting to get flows back again.
There's question marks about how much issuance we may be getting. And I think the headwind that we've observed is maybe concern about how much issuance can be coming into the US high-grade market, really a function of this mega capex cycle, which is coming for AI and hyperscaler investment. And the idea that, as we've already seen, sort of seen towards the end of the year, that that can push up EM spreads and maybe a headwind, particularly for investment-grade credit.
So I think, generally speaking, people are constructive. We've been telling a story where we're really liking higher yield credits more than investment-grade. Part of that story is perhaps that sort of technical pressure, maybe a little bit less crossover flows coming as there's some crowding out from all this EM supply.
And I think that story has been well-received because in the basically last couple of weeks when we've been talking to investors about the year ahead, we've seen the EM be tightened 15 basis points against these very tight levels. It's been a function of high yield outperforming. So high yield, since we published our outlook, has returned 1.4%.
Investment-grade is basically flat. So this story resonates. I think, though, if we think about returns going forward, it's going to be the headwinds from potentially some pressure from EM credit spreads, headwinds from, in our view, our host, JP Morgan, will have higher treasury rates and then just basically that pushing up EM spreads a bit, not a lot.
We see them going from 255, 260, where they are now, to 280. That's going to give a very modest return, like a four-handle. I think maybe we get some pushback.
It's just this idea of the treasuries will be going higher. I think there's some investors with optimism that the Fed can keep cutting more and maybe we get a little bit more joy in terms of the treasury segment of the return. And turning then to specific countries, then, where do you think investors are most focused at the moment in sovereign credit?
Where are they debating the opportunities? And where do you find there may be areas where there's sort of a consensus that you're not quite as comfortable with yourself? Yeah, we're still definitely spending a lot of time thinking about higher-yielding countries.
We've been constructive in Argentina, Ecuador, Sri Lanka. Those are stories that most investors also seem to appreciate and have been constructive on, questions about how much farther they have to go. We've been constructive on a country like Nigeria, where reform efforts have paid dividends and we think can continue to pay dividends, but we're cautious on the oil outlook.
We think maybe further revaluation will have to do with perhaps rating momentum for Nigeria and a nice carry play there. I think where maybe we get some pushback, perhaps in some of the smaller countries. We have seen a tremendous return for Bolivia, which has had a presidential election.
That's one where we think that the fiscal adjustments and some of the policy changes are going to be somewhat hard for the population to swallow and we have to see how they're going to be basically servicing debt with very low reserve levels. Mark has been very constructive on that one. I think where there's also been a lot of focus is clearly on the election countries.
So, focus on Hungary, focus on Colombia, focus on Brazil. And I think here, generally speaking, some caution, some caution basically that these cycles could deliver headlines that may rattle markets and given that levels overall are quite tight, a bit more of a sort of wait-and-see attitude in some of those. And finally, definitely a lot of discussion on Venezuela.
The bonds have rallied a lot. They're at the highest multi-years. There's clearly been a lot of headlines in the mainstream press about the US administration putting pressure on the Maduro administration.
I think that the market is hopeful that this can lead to something that would allow for ultimately a government that could be there, that could restructure these bonds in the way markets are behaving, an optimism that that can happen relatively quickly. I think we're just a little bit more cautious in terms of how long this may play out and whether this will play out in a way which does actually deliver a government in Venezuela that will be sort of welcomed back into the international fold. You know, the elements are there.
There's optimism. But I think the devil will be in the details in terms of exactly how this situation ultimately materializes. So, I think here we're probably a little bit more cautious while the market has been, you know, kind of closing its eyes and constructive.
So, Johnny, markets are ending 2025 on a continuing positive note. How do you think we're set up going into 2026 and how are you looking at the near-term risks? So, I think overall probably the near-term risks are not going to come from within EM, you know, be famous last word, but it feels like we're going to be looking certainly in the start of January, you know, at developments in the US and overall risk markets.
I think there's nothing too huge on the macro outlook. We obviously have some near-term US court rulings on tariffs, also about the relationship between the president's power and the Fed. I think on the data side, the December US employment report, which will be at the end of the first full week in January, is going to get a lot of focus because it's the first clean bit of data we'll have on employment for a while.
But I think from an EM standpoint, markets aren't really pricing a cut anytime soon now for the Fed. And so, I don't know that it's going to have such a big impact. We only really have a full cut price for June.
So, I don't think it's going to be sort of on the downside risk. I think actually if you ended up having a market which was pricing nearer cuts, that will probably be quite a bullish start to the year for EM. Probably levels and positioning are more the near-term concerns for me.
I think credit, as you highlighted, is more about levels, ending the tides. We're expensive in our fair value models. Investors seem to be somewhat split, some not too bullish because of levels, some sort of feeling that we can just keep going in the absence of catalysts.
But I think that is the bit of the asset class where if there's a wobbling risk sentiment, and really I'm talking about global equities, then that's going to pass through given valuations don't have much buffer there. I think on the local market side, in FX in particular, it's more about rising positioning. And we have a keen eye on that.
Our short-term indicators are not showing we are yet overboard in that market, but positioning has been increasing. And that we're sort of keeping an eye out to see if you had a bullish start in January and markets were quite positive, sometimes you can see some of our short-term indicators will start to flash, that markets get overboard. So we will pay attention to that.
I think a good example of where you've seen that play a little bit is BRL. I know there's domestic, obviously, things going on which have been the catalyst, but this was a currency which got overboard on our short-term positioning signals and is off nearly 5% in the last six weeks, back to where we were in June. So these things can matter in the short-term.
I think we want to pay some attention to it. But as I said, I think these are levels and positioning within EM, outside is probably where we'll be focused for the near-term catalyst. And that brings us to the end of this JPMorgan At Any Rate Emerging Markets Focus podcast.
Thanks to Anoushka and Ben for joining today. And as this is the last of these podcasts for the year, we wanted to wish you all season's greetings. Happy New Year to everyone.
Thank you for listening today and throughout the year. And we hope to have you back with us again for the next one in early 2026. This episode was recorded on the 17th of December, 2025.