Stephen Rudman: Good morning and good afternoon. My name is Stephen Rudman, and I am a member of the New York City Ashmore client-facing team. Welcome. I would like to wish everybody a happy 2026. I hope everybody's New Year is off to a great start. 

Additionally, would like to thank you for joining us today. We have what we think is a very interesting webinar: “Emerging Market, Hard Currency, Sovereign debt.” We want to think about what the outlook looks like for the debt space in emerging markets (EM) as we look here at the beginning of the year and looking at potential opportunities in 2026 and beyond. 

The webinar will cover lots of things, obviously, the global economy, implications of global economy, and what that really means potentially for EM debt. So, again, thank you so much for joining. We're thrilled you're here. If you have questions, please enter them, we'll address them at the end. We promise that if we don't get to them, if there are too many, or time does not allow, and for those of you who've done this before, you know we really do, we will get back to you post-webinar, and give you a detailed answer. 

With that, I would like to introduce our two players. We have Gustavo Medeiros, Ashmore’s Global Head of Research, and Alexis De Mones, Portfolio Manager on the EM Debt team. Thank you both for taking the time to share your thoughts with our participants. I think I'll hand it off to Gustavo, and we'll get the ball rolling. Again, thank you all for joining. And Gustavo, here you go.

Gustavo Medeiros: Hi, Stephen, thank you very much for the introduction. I'll start as usual sharing a little bit of a global macro, big-picture backdrop before I hand over to Alexis to talk about specifically EM sovereign debt, which is the topic du jour. 

As we've been discussing, EM assets are really enjoying a great macro environment, and global growth remains supported. EM gross domestic product (GDP) growth is surprising to the upside, likely in 2026 for the fourth consecutive year. And EM macro is backed by structural reforms and better fiscal and monetary policies across most of the large countries that we monitor. We've seen over the last three years, EM fixed income outperforming both US fixed income and developed market (DM) fixed income, across both investment grade and high yield asset classes. EM equities just had the first year of outperformance in 2025, and has started the year really strong in 2026 as well. 

On the global macro side, the US dollar had its weakest calendar year performance since 2003 if you look at the dollar index as a proxy, and that is mostly on the back of the reversal of the US exceptionalism, as we've been flagging, in our view, due to the end of the procyclical fiscal stimulus that drove the exceptional earnings-per-share growth in the US, but also importantly, due to various changes – on the perceived more than the actual –institutional backdrop. There is a very aggressive stance against the US main trading partners by the current administration. The current administration is also orchestrating an attack across key institutions, even including its own central bank, that is keeping some risk premium on US assets that they didn't have previously. 

I should say, actually, there is very little semblance of risk premium despite the fact of these attacks, but there is this willingness to diversify that is getting higher and higher by the day, given the events that we've seen over the last days. US valuations remain elevated versus EM. And now in the equity space, EM earnings per share have been outperforming. This is a fixed income webinar, but once we have an environment of EM equities outperforming, typically that drives risk premium lower in a virtuous cycle. And, you know, all US actions have made it made blatantly clear that investors need more diversification than they currently have. Equity investors that are buying the benchmark currently have more than 70% of allocation in one single country where things are deteriorating, the currency's weakening. And the performance of the economy is still okay. It's still pretty strong. There's capex that is driving the US economic growth, and that's supporting global economic growth. But it's an equity market and it's a currency market that are now underperforming and should be underperforming in a multi-year time horizon.

And in 2026, we believe the global macro environment may even improve for EMs because for the first time since the pandemic, we are seeing some signs in the possibility that we can return to a Goldilocks-like environment in the global macro space. By Goldilocks, I mean growth can surprise to the upside thanks to the large capex that we're seeing in the artificial intelligence (AI) industry and thanks to the very large and fast adoption that we're seeing across industries. But yet, inflation can decline because AI adoption, as we know, has been driving a higher unemployment rate and been getting companies to do more with less. 

Against that backdrop, China keeps on exporting deflation to the rest of the world. So, therefore, we think that we can actually have prices continuing to decline. Services inflation is declining quite quickly, particularly in the Anglo-Saxon world now, which has been the main villain since the pandemic. So, for the first time we actually see this as a very benign environment for asset prices. 

Finally for EM, the energy transition and the AI secular themes are likely to keep on driving commodity prices higher, which is positive for terms of trade. But the discussion today is about sovereign debt, so, Alexis, why don't you tell us a little bit about the valuations and technicals early in 2026 and what we should expect for the rest of the year.

Alexis de Mones: Yes, thank you very much, Gus. So, yes, as you highlight, very, very strong performance both in high grade and high yield with a big outperformance of high yield. So, after this very strong performance, a lot of questions from investors about valuations, and I look at valuations in multiple ways. If you look at the sticker yield, or the sticker spread, I think the sticker yield is still pretty high, high 6%, to 7% at index level. So that certainly is pretty attractive from a long-term perspective and even at historical ranges. A lot of that obviously is driven by the US Treasury yield. If you look at spreads, a lot of questions about valuations in spreads. So, the index spread is a little over 250 over the Treasury. You know, looking since 2003 where we had really good data, it's around the ninth percentile. It's not quite rock bottom, but it's pretty close to rock bottom. It's at the first percentile when it comes to investment grade, so that is definitely pretty expensive relative to historical standards. But the high yield, we're at the 22nd percentile, so certainly a little bit more valuation relative to historical ranges there. 

Now, a couple of comments I want to make. First, why is it expensive? It's expensive because comps are expensive, and it's very well documented that investment grade corporate credit is trading at all-time heights, 72 basis points when it comes to the Bloomberg Corporate IG Index. And also, there is one slightly more sort of technical element of the spread, and maybe optically it's very, very tied to Treasury because the Treasury yield has a very wide spread to swaps. So, the reality is that if you look at the spread to Treasury, the Treasury yield is embedding an amount of policy risk and an amount of set of supply. That actually has taken particularly the back end of the Treasury curve higher. But if you look at the spread to swaps, the spreads are actually not nearly as tight as they appear to be. They are around the 18th percentile range. So, spread to swaps, we've seen these levels before, seen them in 2020, 2018, and 2014. So, in terms of pricing the actual inherent credit spread versus swap at the moment, we're not diverging too much from historical ranges, if you like. 

On technicals, well, it's impressive that after a couple of years of very, very strong performance, we haven't actually seen a lot of flows. Actually, 2024 in external net was a year of very large outflows. And 2025, despite, again very strong performance, the inflows have been quite modest, with some outflows in the first quarter. Now, we clawed that back, and by the middle of the year, we were in net inflow territory, but by the end of the year, in terms of pure dedicated EM debt, sovereign external debt products, we only had about USD 4bn of net inflow, which is 1% of the total assets under management (AUM). 

That's the data, and you have other ways of looking at that, but the flows are very small. We're still hundreds of billions of dollars below where we were just around prior to the COVID levels in terms of AUM in the asset class. People are not particularly long in terms of investor positioning surveys. There was certainly a ramp up in exposure towards the end of the year. Some positions have been lightened up quite a bit towards year-end, and if anything, room has been put in everybody's portfolios ahead of the big issuance season in January. 

So, these are the technicals, and actually talking about issuance, super strong issuance season with a lot of demand, USD 56-57bn of sovereign dollar bonds being placed just in the first couple of weeks of the year after the market truly opened. We are operating about double the issuance, the gross issuance, that we had exactly a year ago at the start of 2025. And that was very geared towards the usual sort of investment grade suspects, namely Mexico, Chile, and Hungary. And in high yield, we've had some Türkiye issuance, and in the docket, we have Ecuador and Benin, particularly, and maybe more from Latin America as well. So that's what we're seeing at the minute, that's kind of the backdrop. 

I think what I want to do at this stage is maybe go into some of the country and regional stories. Gus, you were just in Latin America. You just came back. And so, I think things are changing pretty quickly. While you were there, maybe, we suddenly had a bit of a shift in geopolitical landscape. So, tell us what you found out.

Gustavo Medeiros: Thank you, Alexis. Certainly, Latin America is very interesting. We've been talking about the political transition from leftist regimes to the right for a while now. It's already happened in Argentina, in Ecuador, more recently in Chile. Locals are very excited about the new government in Chile, the Kast government, which comes with a very strong platform to reduce violence, reduce crime, but also to do structural reforms and cut taxes for corporations to regain competitiveness. But at the same time, it wants to do a fiscal consolidation via reducing expenditures, so, making the government leaner, more efficient. 

It's very likely that we're going to see a political transition as well in Colombia and Peru. And we know you can say that there was a defacto transition of regime in Venezuela, and the new regime is going to be much more market friendly. It's already been more market friendly. The big question mark that we spent a lot of time discussing is Brazil. October is the big prize, but that remains a question mark. We don't even know who the candidates are. It does look like we're going to have a Bolsonaro, in particular, Flavio Bolsonaro, against Lula. And we need to see who would be part of their economic teams, how fragmented or how united the centre-right goes to the race, et cetera. 

Now as you mentioned, alongside this political transition, we now have a dynamic where the geopolitical environment is much more supportive for Latin America. We have the return of the Monroe Doctrine, some are calling the Trump corollary to the Monroe Doctrine or the Monroe Doctrine 2.0, which has really three pillars. These are to stabilise the western hemisphere by reducing criminal activities, including activities and activities of states considered rogue states by the US, like Iran, Russia, China, making Latin America a place that is safe, peaceful, and prosperous allies to the US. And alongside that, bring higher economic growth, which will be, by the way, an opportunity for US companies doing business. And it's also an opportunity for the US politically to the extent that if you have higher production of natural resources, initially energy in the case of Venezuela, but it could be metals, it could be strategic minerals, and rare earths in the case of the rest of the region, that's going to benefit the US, right? 

But importantly, there's also another big prize. Trump got elected because of the cost-of-living crisis and immigration crisis. In order to stop the immigration flow and potentially revert in the case of Venezuela immigration flow, you need better economic performance. Most of the reason why Latin Americans have been migrating away from their countries to the United States is the security and economic opportunities. So, it's very interesting that now we have quite clearly a government that understands those dynamics and for the first time in this century is offering both sticks and carrots in terms of incentives to Latin American countries to improve their economic policies. And what is interesting is that obviously Latin America has also had two centuries of its traumas of US interference in the region. The gunboat diplomacy that came a couple of decades after the Monroe Doctrine itself was coined, you then had some waves that created a crisis or political problems in Latin America and created humanitarian issues in the 1960s and 1970s. 

But I think that what was interesting is that most people that I spoke, large investors in the region across the whole of Latin America, really agreed with our view that initially in the first five years, what we're likely to get is a further political alignment. We're likely to see businessmen supporting centre-right and far-right governments that will be more aligned to the US, and that can catalyse more capital to Latin America. So, this incentive can be quite powerful. You know, Latin American equities have been rising faster than precious metals, but in Latin America stocks, you actually have earnings growth, cheap valuations, and improving political and now geopolitical environment. Interestingly, in LatAm, you also have a huge number of opportunities on the bond market, which is what I'm going to ask you now further, Alexis. What do you think are the main opportunities? Where do we see, you know, places to be and places to avoid in the region?

Alexis de Mones: Yes, so, LatAm, you know, is rich in opportunities and has benefitted from great returns over the last couple of years, both in hard and local currency markets. And so, you know, we've got to start with Venezuela, right? And in Venezuela, you do have the market already pricing at the start of a debt restructuring exercise. The government is working with financial advisors. Already the credit committee is discussing how to approach a pretty difficult and complex debt restructuring exercise in view of the number of creditors that the country has accumulated over the years. The US administration is very much in support of that effort, and at the same time, the International Monetary Fund (IMF) is also ready to engage. So, I think all of the stakeholders are ready when any of those conversations can get started. 

And obviously we'll see what sort of instruments come out of that debt restructuring and how to play that, and we are obviously involved. And we won't go into any more detail, but that's going to be, I'd say, opportunity number one as far as LatAm is concerned right now, in the very short term at least. But this has also implications for some of the regional credits because a better-managed and more prosperous Venezuela also means that you're going to have countries that benefit in the vicinity of Venezuela. One of them is Colombia, and already I'd say Colombia, notably the local government bond market, has traded quite well. The currency has traded quite well. And towards the back end of the year also, economic activity data has actually improved. 

I get a sense that already people are positioning for more stability at the border between Venezuela and Colombia going forward. But in the very short term, what's going to happen is you have elections in Colombia, and the market is obviously positioning for a change in economic management. President Gustavo Petro, you know, has run a very, very wide fiscal deficit, and any opposition candidate winning the election would really have an opportunity to generate great goodwill from investors by reversing some of these policies. So that's going to be one, Colombia-Venezuela nexus. In the Caribbean, you're also going to have some activity there around Venezuela and Trinidad and Tobago, which, by the way, is bringing bonds to the market as we speak. There is a large gas operation underway of gas terminals that have been next to running idle really and that could benefit from flow of gas from Venezuela. And that would give them a bit of a shot in the arm in terms of economic activity. So, the Caribbeans would benefit more broadly maybe, T&T being one. 

No real catalyst for the rest of the credits we like in the region, such as the Dominican Republic, others like Costa Rica, these are the ones that I would mention. The rest of Latin America, you do have these terms-of-trade themes that we'll talk about a little bit more. And other Andean countries, particularly Chile, Peru, obviously benefit from stronger commodity, notably precious and industrial metals prices. 

So, we know that in Chile, it's been largely priced in because the political transition has already happened. In Peru, the elections are upcoming, and we know that very positive terms of trade have already translated into better growth. We may have a second reason to like the credit if indeed we have a political transition that is a little bit more market friendly. Not to say that Peru was ever really particularly unfriendly, but the transition could be another catalyst, so we like that as well. 

And in terms of bond market opportunities, you mentioned Brazil very briefly. The interesting thing about Brazil is that it's really, and I think you said yourself very well, it's more insular. It's a continent country. It's quite inward-looking, and it's a relatively more closed economy than some of the others. So, domestic dynamics will determine how the bonds trade. And as we look at it, the elections are very uncertain there. We like to really think of things right now as more 50-50. We are much more really looking at, say, domestic liquidity as an important driver of economic activity. So, the country has a large fiscal deficit. Growth is an answer, and growth has been slowing down. Very tight liquidity conditions is an impediment to growth, so certainly a bit of reprieve from the monetary policy would help in terms of bringing the sovereign spreads down as well. So that's how we look at it, more as a domestic story. 

That's LatAm, but from a global perspective, there may be some other curveballs you haven't actually touched upon yet a little bit further afield from LatAm. So, what do you see impacting what we see, for instance, in Asia and Europe, from a global macro perspective?

Gustavo Medeiros: Yes, I'll just highlight before in LatAm, also Argentina has been benefiting significantly from this new Monroe Doctrine 2.0. Argentina was the country where we started seeing that being implemented in terms of the US supporting the country with capital, with money for the central bank ahead of the midterm elections. And there is a huge amount of excitement and expectation on increasing interest from American investors to invest in the country, given the fact that President Javier Milei has consolidated power and is likely to be pursuing labour and tax reforms that could take the country further into its reforming agenda. Argentina and Ecuador regaining market access is going to be a pretty important milestone I think from the post-COVID era.

Alexis de Mones: No, good point. Everybody's waiting for Argentina to come to the market, which could happen very quickly. They've already done very large repo transactions with international banks. That's allowed them to pay down their big January maturity. And they need funding, and a Eurobond issue is obviously kind of the marquee transaction that would serve as a further catalyst because the story is well known. It's already well invested. It needs more catalyst for spreads to tighten at these valuations, and the debt issuance is obviously one that we're looking at as the next one.

Gustavo Medeiros: I'll touch very briefly on the new events that you asked me, Alexis. The Greenland situation in the Davos Forum in Switzerland was very noisy, obviously. I would say Donald Trump stepped back from each tariff threat in record time this time around. Although it's not clear what exactly was in the deal that he cut with NATO Chief Mark Rutte. The focus is likely to shift now to who's going to be the next Federal Reserve (Fed) Governor. It's unlikely that Lisa Cook is going to be stepping down anytime soon, so by the end of January, we're going to have Stephen Miran stepping down. Most likely they'll have to point at the person that is going to be the next governor to replace Stephen Miran. So that's really a live situation for the next couple of days. 

We're also going to be discussing, and are discussing already, the ceasefire potential in Ukraine. We have had a lot of milestones, including very detailed discussions around security guarantees and reconstruction that are relatively advanced. So that's an important topic. And obviously Venezuela, how the situation unfolds, remains a very important topic.

What is interesting to me to highlight is the fact that the dollar actually sold off during the two days that we had the sell-off related to the tariffs and Greenland situation. And the dollar has not rallied today at all, despite the fact that the market is bouncing back. Actually, the dollar is down again. So, these dynamics where the ‘dollar smile’ has inverted or has broken down, I think remains in place, which keeps acting as a wake-up call for investors to diversify, which will be a multi-year dynamic, which hasn't started yet. That's what I'd like to highlight. Any other topics in other regions that you'd like to mention, mindful of time?

Alexis de Mones: Yes, you mentioned Ukraine. So, in Ukraine you have countries in the region that would benefit a lot if we do have the end of hostilities there. So, Poland would benefit, not really a credit with any sort of short-term catalyst. The ones that would benefit would be Türkiye and Romania. And we look at Hungary as well as one of the countries where things are potentially changing this year because of the election that's coming up in just a few months. So, these are the three where investors are positioning either for a slightly calmer, say, geopolitical environment or a change in leadership. 

In Romania, we've just seen some real progress in terms of fiscal consideration. The new government has really made great headway. They exceeded their fiscal deficit targets last year, and they have a 6% deficit target for this year, which they are also, because of very decisive economic reform, notably tax reforms, and also the freezing of salaries and pensions, they're really improving their standing with investors. And just recently they've announced that their borrowing programme is going to be smaller because they're getting a lot more money from the European Union. So, a lot of capital flowing really to Romania, but also in the region, we've seen a lot of capital flowing into Uzbekistan as well, which offers a new credit. It’s a rare issuer, but a more active sort of presence in the capital markets. That also is a stable macro credit in the region. So that's covering Central Europe and Central Asia. I can't cover all of them, but these would be where we see some short-term catalysts or things moving in terms of credit profile. 

A lot of opportunities are evident if you look further down. The whole of Middle East and Africa has been obviously a source of great opportunities and returns last year, with Sub-Saharan Africa in particular doing extraordinary well. So here the story is, I'd say, is of haves and have-nots. We have this concept of, say, terms of trade. If you have something that you export that's getting more expensive, you benefit. These countries would be those that have been exporting precious metals and industrial metals and maybe agro-commodities as well, to a degree. And the winners here obviously are Ghana, Zambia, and so on. Ghana for gold and Zambia for copper, copper prices really performing very strongly. Copper depends on power generation for its copper output. We think that power generation is going to be helped by good rainfall, so there are some great opportunities there. We know that they have some instruments that trade with some technical features and contingency features that make that trade very technical in nature and a bit volatile. So, this is in the winning category. South Africa as well, obviously, is an exporter of diversified commodity products and very, very large positive terms-of-trade chart. 

And in the not-so winners camp, these are the oil exporters because oil prices are soft, so, Gulf Cooperation Council (GCC) countries, but also in Sub-Saharan Africa, Angola, Nigeria, Gabon. Now great sources of yield for portfolios and remain certainly very tradable assets, particularly where reforms have been very convincing and the pace of reform continues, like Nigeria. To a degree, Angola as well I think has, with IMF assistance, done a great job. Gabon, very much in the market. The country finally said they would approach the IMF, so that may be a catalyst for some better price action just beyond yesterday's rebound. So, this is where we see a lot of action, and, yes, I think we've covered the most topical stories in the 30 minutes that we had. Gus, unless you have anything else, we'll hand over to Stephen.

Gustavo Medeiros: Any questions from the audience, Stephen?

Stephen Rudman: In fact, we just had one, which was with Dollar weakness in 2025 and obviously EM local currency bonds doing very well. Do we think that continues? And moreover, relative to what we chatted about today, how does that benefit potentially hard currency or dollar-denominated sovereign debt, or it just doesn't impact, and it's irrelevant?

Gustavo Medeiros: In our total return scenario analysis, in a nutshell, we see more upside than downside in EM local currency vis-a-vis hard currency, both in a Goldilocks environment, but also in an environment where there's some sort of hard landing, where the Fed has to cut policy rates aggressively because EM central banks have a lot of room to cut. And in a scenario of a hard landing, they're likely to cut a lot. 

Because the Fed has cut policy rates very aggressively, you could actually see a scenario where you have a hard landing or the dollar selling off. I think the hard landing scenario is unlikely, but still, it leaves you with more upside in local currency assets. Now what we typically see is that when the Dollar is weakening, and EM local currency bonds are outperforming, risk premium is tightening in EM global in a dollar fixed income vis-a-vis US fixed income assets. And in that environment, if you are a dollar-based investor that doesn't have the appetite for the volatility profile of local currency bonds, then you should stick to the EMGB-like products. And you have tremendous opportunities in the high yield space that Alexis highlighted, which meant that, you know, last year, for example, both asset classes had very similar performance despite the dollar strength. Anything to add, Alexis?

Alexis de Mones: No, I very much concur. One thing that I haven't mentioned earlier is that when I mentioned the flow picture, a lot of money has been following the local currency trade. So, I don't disagree on the upside in terms of sheer optionality from currency appreciation. But if you look at the flow, last year we had about USD 8bn of flow following dedicated local currency debt products, which reversed the outflow from the year before. So, I think people have taken notice, and it's good because we hadn't seen that for some time. But in hard currency, I think there is a lot less money. So, the spread tightening has not been driven by flows that are nearly as large as the local currency flows, which I think is interesting, but probably because of crossover money actually being allocated to external debt products and that has diversified the investor base for hard currency paper.

Gustavo Medeiros: I mean, that's exactly it, and I'll just add to that that the technicals are completely different, right? In local currency, you have a huge amount of net issuance every single year because 90% of the fiscal deficits in large EM countries are financed in local currency bond markets today, ballpark, 85% or 90%. The hard currency bond market is tiny. It's USD 1.1 or 1.2trn if you add the quasi-sovereigns, depending on where you do the cut-off in terms of USD 500m or USD 300m. And that's a fraction of the US high-grade market. For example, US Treasuries is a USD 30trn asset class today. Every single year there's USD 10trn new issuance. 

So, the technicals are completely different, and that's why some of the highest quality EM sovereign debt is actually starting to trade through Treasuries, because as Alexis mentioned, the spread to swap is what counts. And these countries that have very favourable technicals that never issue the front end of the curve have started to trade through Treasuries, which is pretty interesting. And in my view, it makes sense because of the significant difference on the technical dynamics. 

The last point I'll highlight, yes, credit spreads are very, very tight, but when you buy this asset class, you're buying all-in yields. And all-in yields of 6.8%, if you include defaulted securities, 6.4% ex-default, that's 50 basis points wider than the average over the last 10 years. And over the last five years, there have been a lot of structural reforms, a lot of upgrades, a lot of positives in the environment, and the macro picture is very favourable. So, it's not surprising the credit spreads are tight. 

But when you look at the total return potential, upside versus downside, you still have a very favourable skew towards the upside in a Goldilocks scenario vis-a-vis the downside in a no-lending scenario where the Fed wouldn't cut. And that would be the scenario that would be the most concerning for hard currency assets, or even in hard landing, credit spreads would widen.

Stephen Rudman: Gustavo, Alexis, great answer. Thank you. Very thorough. With that, thank you both for taking the time and sharing your thoughts. Thank you all for attending. A couple of final notes. Again, if you do have any other questions or would like more data information, please reach out to your local Ashmore representative/contact. We are available at your convenience to get you what you need or want. Finally, we will do a follow-up email with the replay so that if you do have other colleagues that you think would find this interesting, you can share with pleasure. And I'll finish with wishing everybody a very healthy, happy, prosperous 2026. That ends today's webinar.