AI, resilient trade and a weaker dollar are turning heads towards the countries driving global growth. Emerging economies haven’t looked this promising in years.
In this article
- Emerging markets are back, helped by faster growth, resilient trade and strong demand for commodities.
- The AI boom is lifting hardware makers and resource exporters, from Asia to Latin America hardware makers and resource exporters are thriving in the AI boom.
- Trade has held up surprisingly well, with more diverse buyers keeping volumes steady.
- A softer US dollar is easing pressure on EM debt and pushing more capital into emerging economies.
Written off and rediscovered, the world’s up-and-coming economies have a long record of bouncing back through cycles. Sure enough, they are back, and the bull run may only just be starting. What is more, today’s backdrop looks more durable than a typical rebound. The IMF says emerging economies have grown faster than advanced economies every year this century. And by the end of 2025, the growth differential widened to 2.6 percentage points – its highest level in a decade. Put simply, when emerging economies grow faster than their developed peers, capital tends to flow into them.
We believe three big structural changes are behind it.
1. Emerging markets are fuelling the AI tech boom
If trade is the backbone of emerging markets, then AI is the topic du jour of this era.
Tariffs, trade restrictions and talk of an AI tech bubble may have stirred anxiety among investors, but some Asian markets have quietly positioned themselves at the centre of the AI ecosystem.
If you ask people which companies they think of when they hear AI, they will all say the same big US tech companies – the so-called Magnificent Seven. But those companies rely on an elaborate network of chip makers, advanced packaging and hardware manufacturers. A network anchored in Asia.
So, while some of the American tech titans stand to make hefty profits from AI, so will the hardware manufacturers in countries like South Korea and Taiwan. And it doesn’t stop there because the hardware makers depend on industrial metals and mined minerals like copper, lithium and rare earths, all largely exported from other emerging nations. Chile alone supplies over a quarter of the world’s copper output and is seeing demand spike from AI data centres.
As AI investment scales, emerging markets that produce energy and critical minerals gain pricing power and volume certainty. That flows straight into stronger export receipts and better terms of trade. Asian hardware hubs buy commodities from Latin America, Africa and other parts of Asia, which expands EM-to-EM trade and cuts reliance on single routes.
Rather than a cluster of US tech companies, AI is a global super-network of hardware, software, and infrastructure. This is pushing up the price of commodities, which is positively affecting emerging markets at both macro and micro levels. For commodity exporters, higher prices are strengthening fiscal positions and external balances. Crucially for the long term, this rally for commodities isn’t just a by-product of a weaker dollar or improved risk appetite, it’s driven by genuine demand from a transforming global economy.
The Chinese infrastructure boom that dominated EM markets has been overtaken by demand for energy and AI. We’re seeing stronger exchange rates, rising currency reserves and, in some cases, a quicker-than-expected pivot towards dovish monetary policies, which are creating a more supportive environment for corporates.
By providing both critical commodity supplies and essential manufacturing hubs, emerging markets could be at the heart of this new technological era for years to come.
2. Trade resilience
Trade in emerging markets is proving resilient, too. Even amid tariffs and trade restrictions, many emerging economies have maintained healthy trade volumes. And demand is everywhere. Global AI investment is a boon for Taiwanese semiconductor makers and there is a stronger manufacturing presence in India.
A need for multi-node production is growing the semiconductor and electronics supply chain, while trade routes for energy and metals have shifted towards emerging market producers. High-frequency indicators (real-time data points that help track economic activity) are showing that export orders and customs volumes have stabilised in important trade routes despite westbound shipments wavering.
Countries across the globe are buying energy and metals from emerging markets, while flexible contracts have softened the effect of tariffs and sanctions.
And with a more buyers and sellers from other emerging markets, trade volumes have remained steady, even as westbound shipments wobble. This means emerging markets are exporting more essential products to more countries, which gives emerging market exporters a stronger hand on pricing. In turn, that supports their external balances, which can strengthen local currencies.
3. A weaker US dollar
A strong US dollar has traditionally been a headwind for emerging markets. It increases the cost of servicing dollar‑denominated debt. At the same time, it weakens EM currencies and erodes investor returns. This has been the status quo for much of the past 15 years, but since early 2025 the dollar has steadily softened. And when the greenback weakens, the opposite effect tends to takes hold. Debt burdens ease, commodity prices generally rise, local‑currency returns improve, and EM central banks gain greater monetary policy flexibility.
The US remains the world’s deepest capital market, but its structural advantages are beginning to creak as policy volatility weighs further on the currency. Historically, periods of large US twin deficits have also coincided with weaker dollar policies aimed at correcting those imbalances.
These shifts matter enormously for global capital flows. Even modest reallocations away from pricey US assets toward undervalued emerging markets can generate outsized returns. And capital leaving the US has to settle somewhere, often in higher‑growth EM economies.
In 2025, around one‑third of the roughly $33 billion invested in US assets by foreign investors originated from emerging markets. Despite this, global investors remain under‑allocated to emerging markets. But a rotation out of US assets, resilient EM growth and a softer dollar are starting to reverse the trend.
A weaker US dollar adds more power to this turn. First, it tends to improve global liquidity conditions, as lower hedging costs and reduced dollar funding stress make it easier for EM corporates and sovereigns to raise capital. Second, a softer dollar often coincides with stronger global risk appetite, supporting equity and bond inflows into regions with superior growth trajectories. Together, these forces strengthen the three pillars (growth premiums over developed markets, credible policy frameworks, and supportive global financial conditions), which leaves emerging markets primed for further growth.
The case for hard currency corporate bonds
From an active manager’s perspective, the case for hard‑currency corporate bonds in emerging markets has rarely been more compelling.
Today’s macroeconomic backdrop - a softening US dollar, moderating global inflation and steady EM growth - aligns powerfully with asset‑class‑specific strengths to create a favourable entry point for investors.
Emerging market corporates now represent a diverse and expansive universe, totalling roughly $2.5 trillion, making it twice the size of both EM hard‑currency sovereigns ($1.2 trillion) and US high yield ($1.2 trillion) and increasingly comparable to the EUR investment‑grade market ($3.1 trillion).
With exposure across 70 countries and a mix of sectors similar to its developed‑market peers, the breadth of opportunities has soared.
Importantly, a majority of the investor base is now domestic - 53% local EM ownership - which tends to be more stable and lower volatility. As a result, EM corporates have delivered the highest risk‑adjusted returns versus EM sovereigns, EM local markets, or EM equities.
EM Corporates
Global fixed income asset classes USDtrn
Source: JP Morgan as at October 2025.
EM corporates offer compelling historical return
Historical return and volatility since 2009
Source: JP Morgan as at October 2025.
Strong fundamentals reinforce the case for allocating now.
EM corporate balance sheets remain healthier than many developed‑market businesses. EM investment‑grade leverage is roughly half that of US and European IG corporates, while EM high‑yield leverage (2.6×) remains below both US HY (3.5×) and European HY (4.7×).
These improvements have converted into a second consecutive year of net credit upgrades and default rates that have normalised to around 3%, on par with developed‑market high yield.
Technicals are equally supportive. Net issuance is set to remain negative for a fifth straight year in 2026 as amortisations, coupons and buybacks continue to exceed new supply. This has created favourable scarcity at a time when inflows into hard‑currency bond funds are strengthening.
Net leverage remains lower than developed markets
Global IG net leverage comparison
Source: JP Morgan as at July 2025. Note: excluding 100% quasis, financials, real estate and defaulted companies. 2022 additionally excludes Russian companies. JP Morgan create their own indices to monitor the size of financial instruments based on internal data. Indices used: JPM Emerging Market Investment Grade Index, JPM US Investment Grade Index, JPM Euro Investment Grade Index, JPM Emerging Market High Yield Index, JPM US High Yield Index, JPM Euro High Yield Index.
Net leverage remains lower than developed markets
Global HY net leverage comparison
Source: JP Morgan as at July 2025. Note: excluding 100% quasis, financials, real estate and defaulted companies. 2022 additionally excludes Russian companies. JP Morgan create their own indices to monitor the size of financial instruments based on internal data. Indices used: JPM Emerging Market Investment Grade Index, JPM US Investment Grade Index, JPM Euro Investment Grade Index, JPM Emerging Market High Yield Index, JPM US High Yield Index, JPM Euro High Yield Index.
Valuations smooth the investment case, making EM corporates especially attractive at the moment.
Adjusted for stronger fundamentals, spreads remain wide relative to global peers, drawing renewed interest from crossover investors seeking yield without materially higher risk. With shrinking supply, fundamentals strengthening, and global capital rotating out of expensive US credit markets, EM corporates are well placed to outperform.
Adding the softer US dollar has created an unusual opportunity where cyclical tailwinds and structural improvements come together. For investors seeking steady income and a balanced risk‑return profile, now could be a perfect time to increase their holdings in EM corporates.
NEM Corporate technicals
EM Corporate external issuance
Source: JP Morgan as at January 2026. JP Morgan create their own indices to monitor the size of financial instruments based on internal data.
Spread compensation for risk
Spread to rating: EM regions and US credit
Source: JP Morgan, Insight and Bank of America as at 30 January 2025. JP Morgan and Bank of America create their own to monitor the size of financial instruments based on internal data.
3181200 Exp: 19 September 2026
