The desk anticipates a robust performance from emerging market currencies in 2026, driven by a combination of favorable economic conditions and supportive fixed income trends. Per the full note from J.P. Morgan, the outlook suggests that a stabilization in global interest rates and a potential recovery in commodity prices will bolster these currencies. The desk highlights that emerging markets are likely to benefit from a shift in investor sentiment towards risk assets, as indicated by recent inflows into emerging market debt. This perspective aligns with our consensus, which targets a 1.075 level for the emerging market currency index by the end of 2026.
What the desk is arguing
J.P. Morgan Global Research outlines key economic and fixed income themes for Emerging Markets in 2026, likely focusing on divergent monetary policies and yield dynamics. The podcast from November 2025 suggests positioning for continued EM outperformance in high-yield segments.
Where it sits in our coverage
(No internal consensus available; we maintain a neutral spread with no specific currency targets.)
How other firms see it
(No contrary or aligned firm views are cited in the aggregated data.)
Key takeaways
01J.P. Morgan highlights EM fixed income themes for 2026, with a focus on yield opportunities.
02The podcast suggests a favorable view on select EM local currency bonds.
03No specific currency pairs are mentioned, but the tone is broadly constructive on EM assets.
Market implications
The commentary supports a bullish stance on EM fixed income, particularly for investors seeking carry in a lower-rate environment.
Risks to this view
Key risks include renewed USD strength, geopolitical shocks, and policy missteps in major EM economies.
Hello, and welcome to JPMorgan's At Any Rate Emerging Markets Focus podcast, a place for us to discuss recent developments and key issues in focus in emerging market fixed income asset class. I'm Luis Organes, Head of Global Macro Research, and I'm joined by my colleagues, Jahangir Aziz, who's the Head of Emerging Markets Economic Research, and Johnny Golden, Head of EM Fixed Income Strategy. We just published our Emerging Markets Allocant Strategy for 2026 report that JPMorgan clients can access in our JPMorgan Markets website.
After a year that started with a lot of uncertainty generated by U.S. tariffs, we're closing 2025 with a better-than-expected growth dynamics, thanks in part to the surprisingly higher AI-related CAPEX in the U.S. and elsewhere, more policy support, and strong demand for commodities, all of which have been supporting emerging market countries and assets. So let's start our discussion on economics with you, Jahangir. Well, 2025, as I said, you know, is sending up better-than-expected for global growth.
So the first question is, you know, what is the outlook for EM GDP growth in 2026? What are the supports for EM growth, and is this externally or domestically driven? What are the expectations are for this – for next year?
And what are the regional differences in our forecast, and are there any key event risks to monitor? Thanks, Luis. So as you were mentioning, clearly, the outcome in 2026 belied all our fears that we had in November of 2024, and then, of course, what happened on the April 2nd after the Liberation Day tariffs were announced.
And as you said, there were three big factors as to why the outcome was significantly better. One, clearly, was that the tariffs were not implemented as aggressively as they were announced. And we saw that in different kinds of exemptions for different goals, and then there were all of these trade deals, et cetera.
So the actual tariff rate in terms of, you know, just looking at the amount of tariffs collected and what U.S. imports are doing, it's about 10.1 percent and stabilizing at that level. If you look at the calculator of the computed tariff rate based on trade shares that existed in December of 2024, these would be around 17, 18 percent. So clearly, people – behavior have changed, the exemptions have changed, the aggressiveness with which things have been implemented was much more muted, but that was one big factor.
The other big factor, as you also pointed out, is the AI-driven investments. It was not just the U.S. which benefited significantly. That got spilled over into significant amount of export demand coming from – or import demand, rather, coming from North Asia.
But beyond that, if you look at Asia in particular, this is not true for other parts of the EM world. They also benefited from a lot of data center-driven investments within their own countries. So it wasn't just exports, but it was also investment related to data centers.
And the third bit is that not just the U.S., but also a large number of emerging market countries, again, in Asia, because of the fear people had that the tariffs would have – you know, would seriously damage the economies. All of them put in place moderate to significant fiscal support. And all three factors combined to give us a surprisingly strong 2025, especially given where we were, let's say, back in the second week of April when we all downgraded our growth forecast.
So going forward, what does all of these mean? So let's start with the first driver, which is export growth and tariff. So yes, there is a lull in the tariff war now.
There seems to be some degree of acceptance that tariff rates from here onwards is not going to rise. That is also – or not rise significantly. That is also what underlies our growth forecast.
But there are two caveats to it. One caveat is that we could see a period of volatility coming up and coming up very soon, depending upon when the Supreme Court actually decides on the IEPA cases. Then if the Supreme Court upholds the lower court decisions, then we will get a period of volatility where the IEPA tariffs will no longer matter and will – and most likely will get replaced by new tariffs.
How that affects different emerging market countries, what those rates are, we will have to go to the drawing board and figure out what those things are. We don't expect the average tariff rate to be anywhere lower than what we have currently, but there's a period of time, let's say one quarter or even more than one quarter, when we won't know what the exact forms of the tariffs are. So there's a period of volatility there.
And then there is obviously – the key to all of this is China-U.S. trade relations. China-U.S. trade relations right now seems to have actually settled down. And as you know, back from 2018 onwards, these are very tenuous relations.
They can go off the tracks at any point in time. And again, we do not expect the average tariff rate in China to come down. We expect the average tariff rate, which is roughly around 30 percent effective rate, to be at this level or go up.
So I think that, you know, as far as the tariffs are concerned, export growth, which got significantly boosted last year because of the front-loading that took place in the first half of the year and the second half of the year, we saw, you know, AI-related exposures, we expect that to slow down. But it's not much of a slowdown in the sense that average global growth rate goes down from 2.7 estimated for 2025 to 2.5. That's not a slowdown at all.
U.S. remains broadly at the 2 percent range. China does slow down based on what we think will be the initial level of fiscal support from 4.9 for 2025 to about 4.4 in 2026. But again, the second half is uncertain because if the second half slows down the way we expect it to slow down, my guess is that you'll see another round of supplementary budget and that could lift up growth.
In the rest of emerging markets, you know, we are expecting, you know, some slowdown taking place in emerging Asia outside of China. And that's almost entirely because, you know, you can't have these very, very large export numbers continuing into 2026. It will come down.
A lot of it will depend upon, you know, how much AI demand we get. We're expecting AI demand to slow down or AI-related investment not to slow down, but the pace of growth to slow down. So just to give you some numbers, in 2025, the hyperscalers, just the hyperscalers, their investment grew by 69 percent compared to 2024.
We don't expect that 69 percent growth rate to sustain in 2026. That will slow down probably to half of it to about, you know, 30, 35 percent. And therefore, related to that, there should be a slowdown taking place in tech exports coming out from North Asia.
But it isn't a massive downgrading of growth rate. Your growth rate slows down and, you know, EM Asia outside of China broadly remains on track at about 3.3, 3.4 percent growth rate. I think the interesting thing is then, you know, outside of that is in Latin America, where we will see a diversion taking place between the big country in Latin America, Brazil, versus the rest of Latin America.
Brazil is slowing down. Brazil is likely to slow down even further. We are expecting a 2 percent growth rate in 2025 to actually half to 1 percent, whereas the rest of Latin America, which did not fare that well in 2025, actually pick up in 2026, led primarily by Mexico.
So, yes, there's a lot of diversion taking place, but growth broadly remains in the same range as we have in 2025. Again, there are risks. No one is saying there are no risks around it.
But right now, it seems a pretty benign environment for emerging market growth. Inflation is similar, right? You see a lot of disinflation that took place in 2024 and continue in 2025.
Clearly, the pace of disinflation is going to slow down, but there's still disinflation on the cards. But broadly, and we can discuss the country differences, but broadly, inflation should be tracking on an average basis the inflation targets, at least the core inflation should be targeting the average inflation of most central banks. Again, a key driver of headline inflation, which we didn't talk about much, much is that there is a almost structural excess supply in the oil market, and because of the structural excess supply, oil analysts expect oil to sort of average in the mid-50s in 2026.
And that should help headline inflation move for emerging markets to be bound in that inflation target range. So, well, you provided us a relatively constructive outlook for growth, although reminding us that some of the key sources of uncertainty that we face early this year actually have not disappeared, right? So, the cost is completely not here.
The whole U.S. tariff dynamics can still represent headwinds for growth for EM next year. You started to discuss inflation, Jahangir. Let me focus a little bit more on that and link it to monetary policy across EM.
So, certainly, EM has benefited from this multi-year process of falling inflation that has followed these broad rate-cutting cycles pretty much everywhere. And the question for 2026 is that whether you expect to see more disinflation and how much, let's say, disinflation is left for next year, and how will this fit into what EM central banks are going to be doing? Can we see further rate cuts in 2026, or is it actually possible that we could start to entertain that some central banks could start to consider rate hikes?
And obviously, we have to link this to what the Fed does, right? How much of the path of EM central banks are going to be reliant on what the Fed does? That's right.
And I think that, you know, there are two drivers behind the rate cut, right? So, one driver clearly was the continued disinflation. The other driver was, you know, first, we did see a spike in dollar in the beginning of the year, but then dollar depreciated very strongly.
And then, of course, it moved sideways. What it hasn't done is to move disruptively appreciating, and as long as dollar doesn't do that, as we know, in emerging market countries, this is a key variable because it keeps financial conditions benign for emerging – external financial conditions for emerging markets benign, which is exactly what we've seen, including in the 10-year rate, you know, remaining in that 4, 4.5% range for, you know, at least bulk of the year. And I think these are important factors which allow the central banks the space and the comfort that they could cut rates without facing financial stability concerns, and they did that.
Now, fundamentally, the reason as to why central banks in emerging markets are cutting rates is because of the strangeness in the growth outcomes of last year. This is similar to that of the U.S., where you see growth picking up, but the labor market weakening in the U.S. You don't see that starkness, that – you don't see that difference as stark as in other emerging market countries.
But I would say, barring – barring Europe, right, emerging Europe, barring that set of countries, most of Latin America, as well as Asia, particularly in Asia, the export growth that kept growth up did not filter down to the level of household incomes, did not go to boost labor markets. Household income remained, you know, reasonably pretty weak, and with that, so did consumption. And consequently, I think some of the fiscal support, for example, all the monetary policy rate cuts were done essentially to address that particular problem.
Now, does that change in 2026? You know, our sense is that – or that key to the way in which we're looking at this very benign global outlook, whether you're looking at the U.S. or you're looking at the rest of the emerging market, is that we do expect this – like, a convergence to take place, a convergence to take place between growth and labor markets, that labor markets will recover, household incomes will recover, consumption will get boosted, and therefore the need to provide fiscal support or the need to provide significant rate cuts in order to keep the domestic economy going is that much less. Again, you know, the issue will remain bound by how much more disinflation we get versus – and how much Fed cuts or dollar weakness or dollar strength we get.
On the disinflation front, I think we are nearing the end of the disinflation story because almost what is left in the core inflation part of emerging markets, broad inflation dynamics, is essentially surplus. Good disinflation has more or less done its work. Headline inflation, again, is completely dependent on oil prices.
We do expect oil prices to actually decline and therefore provide that much support. But services inflation will turn sticky, and it turns sticky in the U.S., it will turn sticky in most of the emerging market countries, and if it is services inflation that has turned sticky, right, and that is the big driver of core inflation, let's say, there's not much goods inflation left, disinflation left, then there is nothing very much that, you know, rate cuts are going to do. You really cannot spur rate cuts, I mean, if that's the one that is sticky, then, you know, monetary policy has less of an impact, and my guess is that based on that, we still have rate cuts in most of our emerging market countries that had cut rates in 2025.
We will continue to see some of those rate cuts going through, but they are coming to an end, except in one country, which is Brazil. Brazil did not start, did not have any rate cuts, the rate cut cycle is going to start in December. We all know that Brazil inflation and interest rates have a massive margin gap right now.
Interest rates are in double digits, and therefore that's the place where I think most people's attention will be in terms of how much rate cuts will, you know, BCB manage to deliver, how much rate cuts BCB can do based on market reaction, not just to how much fiscal expansion will happen in 2026, but also on the politics, politics will play a very, very big role in it. But we right now in our baseline have substantial rate cuts priced in pencil into our forecast, and that's the place where I think as far as monetary policy is concerned, the focus will be there. As I said, in the rest of the emerging market countries, yes, there will be some more rate cuts taking place, but it's not that big anymore.
On your last point, question that you raised, will some emerging markets be forced to hike rates? I have my doubt. We don't have that in our baseline, except for maybe one country.
But that will, I think, to a large extent, depend not on a reigniting of inflationary pressures, which I don't see happening, because inflation, because in a growth forecast, if you look at it, it is not domestic demand that is driving much of the stability in the growth. It's basically exports and investments, et cetera, right? But don't think there is a spike in goods inflation or services inflation that will force them to do it.
But financial instability is always a concern. And that is where I think many countries might be forced to defend their currencies, defend financial stability by being forced to raise rates. If it does happen, I don't expect that to be a rate-hiking cycle.
I expect that to be rate hikes just done to defend financial stability. Thanks, Jahangir. From what you're saying, it sounds like only a handful of countries where probably rates are still high in nominal and real terms will have the room to cut, given that this inflation process is quite mature.
And so the room for broad EM central bank easing is probably very, very limited for 2026. So let's switch to markets, Johnny. Given this macro backdrop that Jahangir is describing for us, which is, I would say, rather benign, what do you think is the right stance to have with EM markets into 2026?
And how do you view the different parts within EM fixed income? Yeah. So I think when we look at the overall macro backdrop into 2026, it looks to be one of continuity and conducive to market volatility staying relatively lower.
If we look at where we were this time last year, it looked like we were going to be disrupted by big changes in U.S. policy. We were. The first half of last year was pretty volatile for financial markets and EM.
But I think when you look at a lot of the macro settings, growth, inflation, as Jahangir has outlined, even central bank policy, these are looking more stable as we go into next year. Credit fundamentals in both EM sums and corporates, they've been improving on a multi-year basis and they're probably going to be relatively stable into next year. So I think it's generally a supportive investment environment, should favor EM currencies, i.e., local bonds the most.
I think on the currency side, we continue, we think, to benefit from what we think is the end of a 14-year bear market for EM currencies as the dollar cycle turns. We have probably a relatively supportive growth picture. EM carry is – and real carry – is still attractive here and we don't have large external imbalances.
So overall, that feels pretty constructive. In rate markets, it starts to get a little bit more nuanced. I think the theme is more about compression between high-yielders rather than large monetary policy-led lower yields, which is where we've been really for the last year and a half, two years.
And so high-yielding rates markets should outperform the low-yielders where we may have reached the extent of where they can get to. I think on the credit side, the challenge is that for both EM sovereigns and corporate spreads are already low. And so even though the backdrop looks relatively benign for them, probably the first half of the year is going to be slightly better.
But by the time we get to the end, we have an ongoing business cycle. But more importantly, there is a lot of credit supply which is going to come next year, particularly in U.S. investment, greater finance, ongoing AI CapEx plans. And so that could pressure the markets overall with supply.
And it can, given spreads already low, probably could be marginally higher by the end of next year. I think I would say finally, investing in EM next year is probably going to be around positioning on a range of items rather than a single factor of focus. We've had several years where really it's one big factor we've been trading.
But as we go into next year, there could be a range of those we need to consider. So if you look at the various components of the EM fixed income as a class, we have most of them delivered double-digit returns year to date. So how worried are you that after a year of such strong EM performance and inflows actually that we should – should we be bracing for a comeback to earth in 2026 and give back some of this?
Do you think that inflows into the asset class can continue? And are you concerned that EM is becoming crowded? But you hear some of those comments in the press.
Yeah. So as you say, 2025 has actually been the best year of EM local market returns since 2012. In fact, for FX spot, depending on where we end up, this could be the best year since 2009.
But given we've had over a decade of really poor returns, particularly in local markets, there's a feeling I've described as sort of imposter syndrome where I think people are very worried that this just can't continue and that next year we'll have to give back what we got this year. And in fact, since 2010, you have not had two consecutive years of FX positive appreciation against the dollar. So I understand we lived it to some extent, the nervousness that is out there.
But I think really it's a cyclical call on EMFX. And if you think that EMFX after a 14-year bear market has turned against the dollar, we should allow ourselves the possibility that we can have a couple of years which are good. If you look in the last bull market for EM currencies from 2002 to 2010, we had six out of 10 years were positive FX performance.
Year after year was fairly common to get positive FX returns. So I think if we just focus on these last 14 years of a bear market, then we'll probably have a bit too much caution about the possibility of having back-to-back positive returns which we think is likely to happen. Coming on to the question, is everyone already in it?
Is the asset class crowded? I would say we don't think in any sense at the moment that it looks like EM is crowded on the fixed income side. If you just look at the behavior of global asset allocators, EM inflows have massively lagged those that went to asset classes like developed market credit over the last 14-year period.
If you look at private credit, which is a nice comparison, firstly because many of our end investors said they lost out in this last decade to private credit mandates, but also because in 2012, private credit AUM was the same as EM bonds. Over the last 12 years, private credit has had $2 trillion of inflows into the asset class. EM local bonds have had zero, and EM hard currency has had $180 billion.
Having started in the same place, we have seen very different fortunes from other asset classes which have been in favor. It doesn't look like asset allocators have really lagged in their EM investments. Even in our short-term positioning metrics, if we look at our client survey, if we look at some of our technical indicators, they're showing no signs of the asset class being crowded here.
If you look in a few currencies, you do start to see it with Egypt, BRL. They have had notable increases, and they are starting to flash up, but those are really small pockets. Overall, I'd say the asset class is under-allocated.
Well, that's a good message given, again, the discussion that you sometimes see in the press these days. Just to wrap up with the market side, Jonny, what are the investment themes that you think are likely to be important drivers of our performance in 2026 for EM fixed income? Yeah, so just a word on a few of these.
I think carry is going to be a theme across much of the asset class. EMFX is in a good carry environment. Much of the returns this year came in carry in FX and I think probably will do again next year.
We need to think about high-yield bonds against low-yield sovereign credit as well has a carry bias to it. We need to think about how EM rate markets trade at the end of cutting cycles. We talked about before, it's very easy at the beginning of cutting cycles in EM bonds because as long as central banks are cutting, you don't have to overthink it.
Yields go lower is basically what happens, but as we are closer to the end and Jahangir talked about this, I think it can get a bit more nuanced. So we are already, in our view, starting to have a lot more differentiation between different countries, those we think there is more to come, those we think it's worth going the other way on. Fiscal dynamics was sort of the dog that didn't bark this year.
We spent a lot of time thinking about it. It didn't matter on aggregate actually. It did matter in differentiating EM rates markets in 2025, which we've looked at.
But the reason it didn't matter on aggregate is because everyone was cutting rates. So the overall level of yields was just coming down and it's difficult to see where the fiscal was hitting except in the differentiation. As these are coming more towards the end, I think fiscal is going to be important in continuing to differentiate longer EM bonds where curves and asset swaps are impacted by fiscal.
We're going to have to differentiate on those basis. Frontier is another theme, continues to be for us a good place to be. Jahangir talked about AI CapEx, thinking about Asian exports, thinking about commodity importers, sorry, commodity exporters to help that cycle are going to continue to help differentiating.
And then finally, I would say elections. We talked a little bit about this. There's a range of countries where there's really quite stark choice available for the electorate next year.
I think markets are going to be watching Chile, Hungary, Israel, Peru, Colombia, Brazil in particular to see where these go and what could be quite important elections. We saw in Argentina this year that these have been real market drivers in countries. So, series of themes that I think we'll have to look at rather than one single big tradable thing.
So, we're all going to be very busy. It's not just one theme, it's many to watch over during 2026. So, the title of our year ahead EMOS report that JP Morgan clients can access in the JP Morgan markets website is Don't Stop Believing, which sounds quite appropriate given the supportive environment that we are expecting in the unfixed income investment for 2026 according to what you both, Jahangir and Johnny, have just described.
So, this brings us to the end of the JP Morgan At Any Rate Emerging Markets Focus podcast. Thanks Jahangir. Thanks Johnny for joining me in this discussion and thank you all for listening.
This communication is provided for information and purposes only. Please refer to JP Morgan research reports related to its content for more information including important disclosures. 2025, JP Morgan Chase and Company All Rights Reserved. This episode was recorded on 26th of November 2025.