July 28, 2026 | Emerging Markets Debt
Portfolio Manager
Portfolio Manager
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https://im.williamblair.com/investments/sicav-funds/lu2879845290-emerging-markets-frontier-debt-fund
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https://im.williamblair.com/investments/sicav-funds/lu2093691256-emerging-markets-debt-hard-currency-fund
Frontier debt delivered strong returns in the second quarter as improving risk sentiment, easing inflation expectations, and declining energy prices supported both hard and local currency markets. Although geopolitical tensions remained a source of volatility, a temporary de-escalation in the U.S.-Iran conflict and expectations for a more accommodative global monetary backdrop helped reinforce investor confidence during the period. Re-escalating tensions since quarter-end, however, underscore the potential for geopolitical developments and energy-price volatility to remain important market drivers.
Fundamentals across many frontier economies remained resilient. Growth held up despite energy supply disruptions, while external balances were supported by capital inflows, foreign direct investment, and generally healthy current account positions. Technical conditions also remained favorable, with continued investor under-allocation, subdued net issuance, and attractive real yields supporting demand.
We continue to view the frontier opportunity set as compelling, although returns are becoming more dependent on carry, policy execution, and country-specific fundamentals than on broad market beta. Following significant monetary easing in 2025, the scope for further rate cuts is now more selective, with Egypt, Zambia, Kazakhstan, and Kenya offering greater room for adjustment than Nigeria.
Below, we show our top exposures, followed by some highlights of our thinking.
Source: William Blair, as of June 2026. Beta buckets are based on the team’s qualitative and quantitative analysis. Risk buckets are provided for illustrative purposes only and are not intended as investment advice or as projections of future returns. Overweights/underweights may vary between vehicles.
Our top hard-currency exposures are Mongolia, Argentina, and Sri Lanka.
Mongolia: We view our position as defensive, supported by Mongolia’s role as a commodity and energy exporter. Coal and energy revenues have provided resilience relative to import-dependent peers, despite periodic macroeconomic volatility.
Argentina: We maintained exposure to hard currency bonds and gross domestic product (GDP) warrants, supported by continued fiscal discipline and central bank reserve accumulation.
Sri Lanka: We maintained exposure to macro-linked bonds, which we believe could benefit from further repricing following the International Monetary Fund’s (IMF’s) endorsement of stronger average U.S.-dollar GDP growth for 2025-2027. We also added local currency bonds after weakness in yields, and the Sri Lankan rupee created more attractive entry points.
Our top local-currency exposures are Ghana, Kazakhstan, and the Dominican Republic.
Ghana: We used second-quarter currency volatility to increase our position, as we believe the worst of the cedi weakness is behind us and valuations remain attractive. Although recent monetary easing has reduced local bond yields, we believe longer-dated bonds continue to compensate investors for prevailing risks.
Kazakhstan: We believe high yields, elevated oil prices, and disinflation should support local bond returns despite two-way currency volatility.
Dominican Republic: We remain overweight sovereign bonds in both local currency and U.S. dollar debt, with a greater allocation to the latter. Solid growth, recovering tourism, and normalizing energy prices continue to support the outlook.
Our top total exposures are Kazakhstan, Egypt, and Kenya.
Kazakhstan: We continue to favor both hard and local currency exposure. Tight U.S. dollar bond spreads are supported by strong external balances, solid growth, and substantial reserves, while mid-teens local yields and declining inflation offer attractive return potential.
Egypt: We maintained our position following the recent adjustment in the currency and rates. The repricing restored attractive valuations, with elevated Treasury bill yields offering meaningful compensation for currency risk and improving policy credibility supporting the carry profile.
Kenya: We added U.S. dollar-denominated bonds alongside our existing local currency exposure, seeking value in a more supportive risk environment as global credit spreads remain compressed.
Yvette Babb is a portfolio manager on William Blair’s emerging markets debt team.
Daniel Wood is a portfolio manager on William Blair’s emerging markets debt team.
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https://im.williamblair.com/investments/sicav-funds/lu2093699408-emerging-markets-debt-local-currency-fund
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https://im.williamblair.com/investments/separate-accounts/emerging-markets-frontier-debt
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https://im.williamblair.com/investments/separate-accounts/emerging-markets-debt-hard-currency
View Strategy:
https://im.williamblair.com/investments/separate-accounts/emerging-markets-debt-local-currency
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