With the world's economy and interest turning increasingly to emerging markets, this would appear to be the one of the most-interesting aspects of investment to work in. Colin Dowdall, global head of insurance solutions at Loomis Sayles, outlines where the market has been this year and what developments we are likely to see across the rest of 2025, going into 2026.

By Pete Carvill, Insurance Asset Risk

Insurance Asset Risk (IAR): Investor appetite for emerging markets (EM) credit appears the best in several years. What do you see as driving this renewed interest in the asset class?

Colin Dowdall (CD): We always like it when investors take a fresh look at the EM credit asset class as it continues to evolve and demonstrate solid risk adjusted returns. We like to highlight the consistent value proposition of EM credit. And, in general, we point to the value in the EM corporate credit space where we see incremental pickup over the sovereign universe. The case for EM corporate credit is generally supported by a variety of factors. It is a large asset class with a market cap of $2.5 trillion, offering exposure to more than 60 countries and 12 broadly defined sectors. These EM countries, in aggregate, are growing at over two times that of the developed market universe, benefiting from a broad set of factors, including policy reforms, infrastructure development, industrialisation, digitalisation, and increasing formality of the consumer. The corporate universe exhibits robust fundamentals with superior leverage metrics compared to developed market investment grade and high-yield peers. And, despite these tailwinds, EM Corporates offer attractive spread pickup versus similarly rated US corporates. For example, when adjusting for both duration and ratings, we can see EM BBBs offer, on a 5yr average offer 50bps of pickup versus US BBBs. EM BBs offer, on a 5yr average 90bps of pickup versus US BBs. This incremental spread provides attractive carry during benign periods and downside protection during periods of volatility.

IAR: Where are investors looking now for new opportunities?

CD: Today, with the Fed easing cycle and potential drag on US growth from the new tariff regime we are seeing investors looking for opportunities in other markets. A weakening US dollar is adding to the narrative of opportunity in the space. As EM currencies appreciate, this reduces inflationary pressures. Moderating oil prices also provide a tailwind, given the majority of EM countries are net oil importers. With inflation in target, EM countries are on the pathway to a virtuous cycle of improved external balances, lower debt burdens, and lower financing costs which often translates into improved domestic growth landscapes and capital inflows. This really is a sweet spot for emerging market dynamics and investment opportunity.

IAR: What risks and opportunities do you anticipate for EM economies as US trade protectionism takes root?

CD: Thus far, emerging markets have been largely resilient to US trade protectionism. Since liberation day, a litany of trade frameworks, exemptions, and 'goods' carve outs have limited the impact of the initial headline reciprocal tariff level. Many of the more-vulnerable, export-oriented economies were first to the table to reach deals with the Trump administration. From a trade angle, China has dominated market focus. What we see there is slow implementation and on-going negotiations which have avoided a 'worst case' trade standoff. While tariff noise has acted as an overhang for Chinese growth in 2025, export front loading, target stimulus measures, and accelerated investments in 'new economy sectors' such as AI, IT/communications, electronics, and healthcare/medicine has backstopped the China growth story. China is mostly on track to deliver ~4.8% for full year 2025, in line with its policy targets.

IAR: And for the wide Asian region?

CD: Importantly within EM Asia ex China, tech supply chain manufacturers, South Korea, Taiwan, Malaysia and Singapore have buffered the downdraft from US tariffs from the surge in AI investment. Countries with more domestic-focused economies such as India and Indonesia have ringfenced exposure to trade given their internal demand drivers.

IAR: And the world beyond those borders?

CD: Many core EM countries in Africa, EM Europe, Latin America, and the Middle East see limited first-order impact from tariffs. These countries are subject to the lower 10% baseline, have more domestically focused economies, trade more with Europe than with the US, or export hydrocarbons/minerals that remain exempt from tariffs. Overall, we believe the reorientation of supply chains and the reconfiguration of trade may present opportunities for some EM countries, while presenting headwinds for others. For example, we have little doubt that agriculture in Latin America will benefit as China pulls back from US supply.

IAR: One thing we've long been interested in has been the increase in trade amongst EM economies. Can you tell IAR a little about that?

CD: Another interesting observation - we have seen trade among EM economies surge over the past 20 years. As a percentage of global goods traded, trade among EMs has almost doubled to around 30% while trade between EM and developed markets has dropped by 5 percentage points. The reconfiguration of global trade may encourage this trend.

IAR: Where do you see opportunity in EM private placements?

CD: EM private placements are an interesting part of the market that we anticipate will continue to grow as investor preferences shift and issuers look for alternatives to local bank capital. We have seen some early deal flow primarily in the financials area where the pickup to comparable rate publics looked attractive.

We believe that it will be increasingly important for life insurers to expand the opportunity set as they seek risk adjusted yield, diversification, and supply of longer dated paper in the EM markets. We expect that project finance will be a natural extension given the continued need for capital in fast growing emerging markets.

IAR: When it comes in integrating technology, where have the challenges been and what progress have you made?

CD: We believe that any successful asset manager needs to embrace the intersection of technology and asset management. Our proprietary portfolio management and risk platform has served as a leader in integrating our broad and deep emerging market credit research into a framework that enables us to closely partner with our insurance clients. There were significant challenges to ensuring that we didn't miss any of the complexity that is derived by deep fundamental research.

IAR: The rate of change and development in technology is rapid – how do you work around that and how can you plan for future changes?

CD: We recognise that the pace of change with technology is accelerating. At Loomis Sayles, we have embraced the challenge. A key tenet of our technology philosophy is open architecture that enables us to quickly integrate the latest technology so that we are on the cutting edge within the industry.