Despite relentless market uncertainty, emerging markets debt (EMD) has produced strong outperformance since the end of 2023. With uncertainty likely to continue framing markets, we see a number of reasons for EMD to continue outperforming:

− Global growth appears resilient and growth differentials are in EMs favor;

− Improving EM fundamentals contrast a world of developed market deterioration;

− A U.S. rate cutting cycle is likely to reduce tail-risks;

− A weaker USD has multi-pronged benefits for EMs;

− The macro environment supports carry—yields can generate strong returns;

− And many of today’s visible risks emanate from the U.S

This paper focuses on emerging markets’ role in rescripting the New World Order amidst the pervasive geopolitical, global macro, and country specific challenges. Populist tendencies and polarized political economies are commonplace globally with market implications that are likely escalate in the fourth quarter and throughout 2026. If these implications materialize, the impact across countries would be varied, expanding the opportunities for alpha generation.

Furthermore, as fiscal pressures across developed markets mount, the U.S. dollar has weakened despite interest-rate differentials moving in its favour. European assets have been the primary beneficiary of diversification from the U.S. assets YTD, but we believe the asset class offers an opportunity for investors to both diversify as well as outperform given the cyclical tailwinds and structural divergence in fundamentals that favour the EMD complex.