Key takeaways:
- The hard currency emerging market sovereign universe (EMD HC) is now a mature asset class spanning over 70 countries across the full ratings spectrum, with over 50% rated investment grade. The breadth of countries brings fundamental diversification of risk within an investor’s portfolio.
- EMD HC provides investors with access to the EM ‘risk premium’ combined with the more defensive properties of bonds.
- Investment outcomes can be enhanced through active management due to the complexity of the asset class and prevailing market inefficiencies.
Emerging markets (EMs) as an asset class have been accessible for over two decades, yet misconceptions surrounding them continue to deter some investors. Despite EMs accounting for over 60% of global gross domestic product (GDP)¹ and being home to over 80% of the world’s population,² investors are under allocated to the asset class. EMEA investors have on average a 5% allocation to emerging markets debt (EMD), while Latin American investors on average of 2%.³ Many miss the chance therefore to diversify their portfolios by not incorporating exposure to EMs.
Some of the key attributes of Emerging Markets Debt Hard Currency (EMD HC) are:
- Attractive yields: EMD HC offers yields that are much higher when compared to developed market (DM) debt, with a significant portion of the universe rated investment grade (IG), presenting robust return potential over the long term.
- Resilience and stability: Despite preconceptions, EM countries have demonstrated marked improvement in economic fundamentals, making them more resilient to global economic shifts.
- Diversification: EMD HC provides fundamental diversification of risk by offering exposure to a multifaceted range of countries. It provides access to the EM risk premium combined with the more defensive properties associated with hard currency (HC) bonds.
- Active management opportunities: The complexity and inefficiencies inherent in the asset class necessitate active management strategies to successfully navigate and capitalise on opportunities that, in our view, passive strategies overlook.
¹ Source: IMF, DataMapper March 2026. GDP is in Purchasing Power Parity terms, US dollars.
² Source: United Nations, World Population Prospects, as at 2025.
³ Source: Portfolio Construction and Strategy team analysis on data from Janus Henderson EDGE™ for Europe inc. UK and Latin America from March 2025 to February 2026.