October 27, 2026 | Emerging Markets Debt
Portfolio Manager
An income-oriented strategy investing across the full emerging markets fixed income opportunity set.
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After a strong start to the third quarter, local currency EM debt came under pressure in September as expectations for U.S. monetary policy turned more hawkish and the dollar rallied. But beneath the headline volatility, the picture remained highly uneven across countries and regions.
We remain constructive on EM local currency debt heading into 2027. Resilient fundamentals, attractive yields, and supportive technicals continue to underpin the asset class, even as geopolitical risks and developed-market rate volatility create periodic headwinds.
That environment puts a premium on selectivity. Using our beta-bucket framework, we are finding opportunities across local rates and currencies where we believe valuations, policy dynamics, and macroeconomic fundamentals create attractive risk/reward profiles.
To allocate capital and budget risk effectively across a large and diverse set of countries, we use a proprietary grouping framework. Rather than organize by region, we classify issuers into low-, medium-, and high‑beta buckets. We believe this approach captures true risk profiles given the wide range of development levels within regions and allows for fairer comparisons and more optimal portfolio construction.
Source: William Blair, as of September 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.
In rates, we are overweight the Czech Republic and Hungary, and underweight China and Thailand. In FX, we are overweight the Chilean peso, Czech koruna, and Polish zloty, and underweight the Romanian leu, Peruvian sol, and Hungarian forint.
Czech Republic (overweight rates and FX): While the Czech National Bank has remained on hold, policy rates remain restrictive and inflation is still well contained. The koruna is supported by relatively strong macroeconomic fundamentals and attractive valuation, while local bonds offer an appealing balance of carry and duration relative to peers. While fiscal risks have increased somewhat following a more expansionary policy stance, we continue to view Czech assets favorably within the broader central European opportunity set.
Hungary (overweight rates, underweight FX): Inflation has remained subdued, allowing the National Bank of Hungary to continue its easing cycle, and we believe there is further scope for lower yields as inflation expectations remain anchored. While the forint continues to offer attractive carry, we prefer to express our constructive view through rates given ongoing fiscal uncertainty, energy-price sensitivity, and external volatility.
We continue to see value in Polish duration given relatively high real yields and resilient economic fundamentals.
Poland (overweight rates and FX): Although fiscal deficits remain elevated and have contributed to market volatility, we continue to see value in Polish duration given relatively high real yields and resilient economic fundamentals. The zloty remains supported by solid growth, continued EU-related investment inflows, and a relatively cautious stance from the National Bank of Poland. Recent weakness has improved valuations and strengthened our conviction in the position.
China (underweight rates): We consider Chinese government bonds unattractively valued given their low yields and carry.
Thailand (underweight rates): We find valuations unappealing and view the global rates outlook, to which the Thai rates market remains highly sensitive, cautiously. That said, the domestic economy remains fragile, with growth facing continued pressure from global geopolitical spillovers. As a result, pressure on the Bank of Thailand to raise rates remains relatively limited.
Romania (underweight rates and FX): While inflation has moderated and the central bank has maintained a stable policy backdrop, we continue to have concerns regarding fiscal consolidation, political uncertainty, and external financing vulnerabilities. Romanian markets have shown resilience despite these challenges, but we believe risks remain skewed toward higher risk premia over the medium term.
Chile (overweight FX): The Chilean peso has weakened considerably on low growth and higher oil prices, but we expect both trends to improve. In particular, we believe the drag from weak activity in the mining sector should correct, and with oil prices already back below $95 per barrel, we expect some relief on the external side too.
Peru (underweight FX): We reduced our exposure to the sol as higher inflation has eroded real rates and the central bank is expected to tighten policy only modestly in an attempt to balance inflation and growth risks.
In rates, we are overweight Poland, Hungary, and Turkey, and underweight Romania, South Africa, and Indonesia. In FX, we are overweight the Indonesian rupiah, Mexican peso, and Turkish lira.
Brazil (overweight rates): Regardless of the outcome of the elections, we believe the central bank will have more scope to cut rates as the economy slows. While the market expects a larger fiscal adjustment under a Bolsonaro government, which would likely push inflation expectations lower, real rates are already among the highest in EMs against a backdrop of cooling inflation. However, the size of any fiscal consolidation will be a key driver of the pace of monetary policy easing.
In Turkey, we continue to believe that exceptionally high carry provides attractive compensation for depreciation risk.
Turkey (overweight rates and FX): We continue to believe that exceptionally high carry provides attractive compensation for depreciation risk, while the central bank remains committed to a more orthodox policy framework. Inflation has continued to moderate gradually and domestic demand has softened, increasing the likelihood of a measured easing cycle. While higher energy prices have complicated the disinflation process, we remain constructive on both local rates and currency valuations.
Colombia (overweight rates): The central bank appears to be nearing the end of its tightening cycle. September’s 25-basis-point hike was a sharp step down from June’s 75-basis-point hike, and if the central bank hikes again in December, it would likely be the last move of the cycle, at a terminal rate of 12.5%. The government is prioritizing fiscal reform with potential for a reduction in net borrowing of more than 4% of gross domestic product (GDP), which would be critical for unlocking a virtuous cycle of improved investor sentiment, lower inflation, and lower borrowing costs.
South Africa (underweight rates): Although the South African Reserve Bank has reinforced its inflation-fighting credentials through a hawkish policy stance and a September rate hike, we believe improving growth expectations, elevated inflation risks associated with higher energy prices, and less compelling valuations limit the upside for local bonds.
Indonesia (overweight FX): Valuations and technicals are improving as stability returns to financial markets following the appointment of new leadership to key economic positions. Efforts to channel some Danantara (the country’s sovereign wealth fund) income back toward the budget have also helped restore investor confidence in policy and fiscal credibility.
Mexico (overweight FX): We expect the central bank to hold at 6.5%, and recent depreciation has put the peso in a more favorable position in terms of relative valuation.
In rates, we are overweight Colombia, Zambia, and Uganda. In FX, we are overweight the Nigerian naira, Zambian kwacha, and Egyptian pound.
Zambia (overweight rates and FX): Continued progress on macroeconomic adjustment, improving policy credibility, and confidence in the country’s economic reform program support our positive outlook. Local bonds continue to offer attractive real yields, and we believe there remains scope for further curve compression as inflation gradually moderates and investor confidence improves.
In Uganda, policy continuity and stable macroeconomic management underpin our favorable outlook.
Uganda (overweight rates): Macroeconomic fundamentals remain supportive, inflation is well contained, and the country continues to benefit from oil-sector-related investment flows and solid external buffers. Long-dated bonds continue to offer attractive real yields, while policy continuity and stable macroeconomic management underpin our favorable outlook.
Uruguay (overweight rates): We have increased exposure to the Uruguayan local curve owing to attractive valuations, low but improving growth, and the expectation that inflation will moderate despite lingering pressure from energy prices and El Niño-related effects.
Nigeria (overweight FX): High local interest rates, improved foreign exchange liquidity, and continued policy reform momentum support the currency. While positioning has become more crowded over time, we continue to believe that attractive carry, stronger investor confidence, and improving macroeconomic fundamentals support further positive returns.
Egypt (overweight FX): The currency continues to offer attractive carry and valuation support, while ongoing reforms backed by the International Monetary Fund and continued external financing support provide an important anchor for investor confidence. Although external conditions remain challenging and the currency experienced weakness during the quarter, we believe the medium-term risk/reward profile remains attractive as reforms continue to progress.
Lewis Jones, CFA, FRM is a portfolio manager on William Blair's emerging markets debt team.
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