Emerging Markets
Emerging markets encompass regions with significantly diverging fundamentals and a broad range of credit challenges—from persistent inflation and tightening financing conditions to sluggish domestic demand and geopolitical tensions.
How We Rate Emerging And Frontier Markets
Emerging and frontier markets are strategically positioned to drive global economic growth through the expansion of their domestic markets.
Emerging and frontier markets will play a crucial role in shaping the global economy and driving growth, contributing approximately 65% of global economic growth by 2035. Frontier markets will play a prominent role in this growth due to their favorable demographics—but face significant challenges from persistently high inflation and political uncertainty.
Monthly Highlights
Global Tensions, Local Resilience
A weaker U.S. dollar will support disinflation across Emerging Markets (EMs), with the median EM currency up 7% year-to-date. Lower prices for imported goods in local currency, alongside subdued oil prices, will be main drivers of slower inflation in several EMs. This gives EM central banks more space to lower interest rates after years of significant monetary tightening.
EM-U.S. benchmark spreads narrowed across most emerging markets, as the recent rise in U.S. 10-year government yields did not prompt similar moves in EM counterparts—potentially signaling robust investor appetite toward developing economies. However, a historical analysis shows this is not without precedent.
Number of risky credits drops amid market slowdown. Following the upward revision of Argentina’s transfer and convertibility assessment, the number of ‘CCC+’ and lower rated issuers in EMs fell to nine from 15. This pool of entities did not issue debt in February-April 2025, indicating the sharp rise in borrowing costs triggered by the tariff-related market turmoil, as well as a manageable maturity schedule.
EM benchmarks and corporate yields narrowed in May, while the number of defaults accelerated, with three Brazilian issuers defaulting in the month, bringing the EM year-to-date count to four. Market activity rose notably in Saudi Arabia (Aramco) and Colombia (Grupo Nutresa). However, issuance was sluggish in Brazil, Mexico, and Malaysia, and it decreased in Greater China, which posted a 25% decrease from April.