May 5, 2026 | Emerging Markets Debt
Portfolio Manager
View Fund:
https://im.williamblair.com/investments/sicav-funds/lu2093699408-emerging-markets-debt-local-currency-fund
View Strategy:
https://im.williamblair.com/investments/separate-accounts/emerging-markets-debt-local-currency
Want the latest insights on the economy and other forces shaping the investment landscape?
Subscribe to our Investing Insights newsletter.
Rising geopolitical tensions in the Middle East have added volatility to emerging markets (EM) local currency debt, with energy price shocks and shifting risk sentiment driving dispersion across rates and FX. This backdrop reinforces the importance of selective, country-level positioning. Below, we outline our positioning across rates and currencies by country at the end of March 2026.
To effectively allocate capital and budget risk across a large and diverse group of countries, we employ a proprietary grouping methodology. Countries are each assigned a beta bucket based on market beta and local capital-market considerations. Liquid markets are classified as high or low beta, and less-liquid, idiosyncratically risky countries are assigned a frontier grouping. This enables us to make relative value and asset-allocation decisions according to risk profile rather than by region or other common characteristics.
Source: William Blair, as of March 31, 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.
High‑beta markets represent EMs at a more intermediate stage of development, where local assets are more sensitive to global macro forces such as commodity cycles, shifts in risk sentiment, or developments in China. In these countries, the total return profile of local bonds is often dominated by FX performance, often with a higher correlation between currency and rate movements than low‑beta markets.
Mexico: We are overweight duration, reflecting weaker growth dynamics and scope for further Banxico rate cuts. Recently, markets have shifted toward pricing potential hikes, which we view as inconsistent with Banxico’s focus on mitigating downside risks to growth. We also maintain an overweight position in Pemex bonds, where we believe increased government support should drive spread compression relative to the sovereign. In foreign exchange (FX), we remain overweight the Mexican peso, with valuations becoming more attractive following the recent selloff.
Brazil: We are overweight both rates and the real. Brazil continues to offer one of the highest real interest rates in the benchmark index, supporting portfolio inflows. Growth is expected to moderate in 2026, with inflation expectations around 4%, suggesting scope for further policy easing from restrictive levels. As a net energy exporter, Brazil has also benefited from improved terms of trade amid higher commodity prices.
Colombia: We are overweight local rates because markets are already pricing multiple additional hikes. Real yields remain attractive in our view and, following front-loaded tightening by the central bank, downside risks to growth could prompt the market to unwind a portion of the hikes currently priced in.
Indonesia: We are underweight both rates and FX amid weaker tax revenues, slowing growth, a rising fiscal deficit, governance concerns, increased supply risks, and external shocks stemming from global energy price spikes triggered by geopolitical tensions in the Middle East.
South Africa: We are overweight the rand even though it experienced elevated volatility during first quarter as global risk sentiment fluctuated in response to developments in the Middle East. South Africa continues to benefit from positive real rates, improving fiscal credibility under the coalition government, and favorable terms of trade relative to many peers. While valuations are less compelling than earlier in the cycle, we view the rand as comparatively resilient in a high-carry, differentiated EM environment.
The low‑beta bucket consists of higher‑income, more advanced EMs with stronger credit quality. Their rate markets tend to depend primarily on inflation expectations, monetary policy, fiscal discipline, and market liquidity conditions. Currencies in this group typically trade with lower volatility and often move in line with global majors, while limited excess yield or term premium provides only modest compensation during periods of broader EM volatility. Benchmark exposures can often be efficiently replicated using derivatives.
Hungary: We maintain an overweight position in rates, focused selectively on the belly and long end of the curve, where valuations remain more compelling. However, during the first quarter, heightened inflation uncertainty tied to the Iran conflict, along with a more hawkish reaction function from the National Bank of Hungary, weighed on rate performance, particularly for received positions. While medium-term disinflation remains credible and fiscal metrics are broadly stabilizing, we believe near-term policy caution and election-related uncertainty warrant a more selective approach to duration exposure.
Malaysia: We maintained a long duration position over the quarter, reflecting our view that the economy’s resilience to external shocks, alongside relatively strong energy security, would support a faster and more sustained recovery in asset prices.
South Korea: The five-year receiver position serves as a macro hedge to reduce the overall duration underweight stemming from low-beta Asia.
China: We maintained an overweight position in the Chinese renminbi, supported by the People’s Bank of China’s willingness to allow currency appreciation as valuation pressures build in real effective exchange rate (REER) terms and seasonal U.S. dollar selling by exporters increases. The renminbi has also been less volatile than other EM currencies amid the Middle East conflict, benefiting from China’s strategic advantage of having accumulated ample oil reserves over time. On rates, we have a meaningful short duration stance, reflecting our cautious view on Chinese government bonds, particularly at the long end of the curve, given low yields and carry, as well as recent anti-involution policies aimed at mitigating deflationary risks.
Thailand: We remain underweight duration due to unappealing valuations. The economy has been severely affected by energy-supply disruptions and elevated oil prices stemming from the Iran conflict. Financial market performance is likely to remain weak as the growth drag from these global spillovers adds further pressure to an already fragile domestic economic backdrop.
Czech Republic: We are underweight rates and overweight the koruna. During the first quarter, rates were relatively well anchored, but FX underperformed amid episodes of global risk aversion triggered by the Iran conflict (despite resilient domestic fundamentals). We continue to believe the koruna is supported by strong institutional credibility and favorable medium-term valuation, while remaining mindful of positioning risks in a volatile external environment.
Poland: Our underweight position in the zloty reflects stretched valuations following strong inflows earlier in the quarter and our view of a less supportive risk-reward profile as geopolitical risks intensified. While rates benefited from early-quarter dovish repricing and foreign demand, FX performance was more mixed, and fiscal uncertainty alongside unchanged issuance plans limits upside from current levels.
Romania: We are underweight the leu as structural external vulnerabilities persist. Although the election cycle has passed and fiscal consolidation is expected to continue gradually, execution risks remain elevated amid high financing needs and still-elevated inflation. During the first quarter, the leu proved sensitive to global risk-off dynamics tied to the Iran conflict, reinforcing our cautious stance on FX.
Our frontier bucket includes countries in the early stages of developing local bond markets and tradable FX markets. These economies typically face higher inflation uncertainty and elevated FX pass-through, which can limit investor appetite for longer maturities or fixed‑rate issuance. Frontier currencies are often pegged to or tightly managed against the U.S. dollar, and local yields tend to be higher. Using robust credit analysis to understand these countries can help us uncover compelling opportunities.
Zambia: We are overweight local rates, supported by strong macro fundamentals, ongoing disinflation, and favorable terms of trade, alongside continued momentum in key export sectors. During the first quarter, Zambia proved relatively resilient despite the Iran-related shock, benefiting from attractive real yields, supportive carry, and improved investor confidence in fiscal discipline and debt sustainability. We see scope for further curve compression.
Uganda: We are constructive on local assets. The first quarter was characterized by contained election risk, strong FX buffers, and steady progress toward renewed International Monetary Fund (IMF) engagement. Long-dated bonds continue to offer attractive real yields, while oil-related foreign direct investment inflows and solid reserves underpin our positive view on the Ugandan shilling despite heightened global volatility.
Kenya: We are overweight local rates, where we believe yields continue to compensate adequately for macroeconomic and fiscal risks. While global risk-off dynamics linked to the Iran conflict increased volatility, we believe attractive carry and scope for gradual macro stabilization support selective duration exposure.
Egypt: We are overweight the Egyptian pound, supported by high carry, improved FX valuations, and cleaner positioning following recent de-risking. With IMF-backed reforms intact and external financing support in place, the recent currency adjustment has restored our view of a more attractive risk-reward profile.
Pakistan: We continue to maintain an overweight position in the Pakistani rupee, which we view as fairly valued following successive rounds of currency adjustment under the IMF program. That said, the position carries near-term risks, particularly from elevated oil prices and increased U.S. dollar demand linked to upcoming external debt redemptions over the coming quarters.
Lewis Jones, CFA, FRM is a portfolio manager on William Blair's emerging markets debt team.
Any investment or strategy mentioned herein may not be appropriate for every investor. There can be no assurance that investment objectives will be met. Products and services listed are available only to residents of this jurisdiction and may only be available to certain categories of investors. The information on this website does not constitute an offer for products or services, or a solicitation of an offer to any persons outside of this jurisdiction who are prohibited from receiving such information under applicable laws and regulations. Nothing on this webpage should be construed as advice and is therefore not a recommendation to buy or sell shares.
Please carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus and summary prospectus, which you may obtain by calling 1-800-742-7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss.
The William Blair Funds and William Blair ETFs are distributed by William Blair & Company, L.L.C., member FINRA/SIPC.
The William Blair SICAV is a Luxembourg investment company with variable capital registered with the Commission de Surveillance du Secteur Financier (“CSSF”) which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). The Management Company of the SICAV has appointed William Blair Investment Management, LLC as the investment manager for the fund.
Please carefully consider the investment objectives, risks, charges, and expenses of the William Blair SICAV. This and other important information is contained in the prospectus and Key Investor Information Document (KIID). Read these documents carefully before investing. The information contained on this website is not a substitute for those documents or for professional external advice.
Information and opinions expressed are those of the authors and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC, or affiliates. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Information is current as of the date appearing in this material only and subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. This material may include estimates, outlooks, projections, and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented.
Investing involves risks, including the possible loss of principal. Equity securities may decline in value due to both real and perceived general market, economic, and industry conditions. The securities of smaller companies may be more volatile and less liquid than securities of larger companies. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks. These risks may be enhanced in emerging markets and frontier markets. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. High-yield, lower-rated, securities involve greater risk than higher-rated securities. Different investment styles may shift in and out of favor depending on market conditions. Diversification does not ensure against loss.
Past performance is not indicative of future returns. References to specific companies are for illustrative purposes only and should not be construed as investment advice or a recommendation to buy or sell any security.
William Blair Investment Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.
Issued in the United Kingdom by William Blair International, Ltd., authorized and regulated by the Financial Conduct Authority (FCA), and is only directed at and is only made available to persons falling within articles 19, 38, 47, and 49 of the Financial Services and Markets Act of 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons").
Issued in the European Economic Area (EEA) by William Blair B.V., authorized and supervised by the Dutch Authority for the Financial Markets (AFM) under license number 14006134 and also supervised by the Dutch Central Bank (DNB), registered at the Dutch Chamber of Commerce under number 82375682 and has its statutory seat in Amsterdam, the Netherlands. This material is only intended for eligible counterparties and professional clients.
Issued in Switzerland by William Blair Investment Services (Zurich) GmbH, Talstrasse 65, 8001 Zurich, Switzerland ("WBIS"). WBIS is engaged in the offering of collective investment schemes and renders further, non-regulated services in the financial sector. WBIS is affiliated with FINOS Finanzomubdsstelle Schweiz, a recognized ombudsman office where clients may initiate mediation proceedings pursuant to articles 74 et seq. of the Swiss Financial Services Act ("FinSA"). The client advisers of WBIS are registered with regservices.ch by BX Swiss AG, a client adviser registration body authorized by the Swiss Financial Market Supervisory Authority ("FINMA"). WBIS is not supervised by FINMA or any other supervisory authority or self-regulatory organization. This material is only intended for institutional and professional clients pursuant to article 4(3) to (5) FinSA.
Issued in Australia by William Blair Investment Management, LLC (“William Blair”), which is exempt from the requirement to hold an Australian financial services license under Australia's Corporations Act 2001 (Cth). William Blair is registered as an investment advisor with the U.S. Securities and Exchange Commission (“SEC”) and regulated by the SEC under the U.S. Investment Advisers Act of 1940, which differs from Australian laws. This material is intended only for wholesale clients.
Issued in Singapore by William Blair International (Singapore) Pte. Ltd. (Registration Number 201943312R), which is regulated by the Monetary Authority of Singapore under a Capital Markets Services License to conduct fund management activities. This material is intended only for institutional investors and may not be distributed to retail investors.
Issued in Canada by William Blair Investment Management, LLC, which relies on the international adviser exemption, pursuant to section 8.26 of National Instrument 31-103 in Canada.
The content contained in this site is intended as informational or educational in nature and does not constitute investment advice or a recommendation of any investment strategy or product for a particular investor. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions. Investors should consult a financial professional/financial consultant or investment adviser before making any investment decisions. Investing includes the risk of loss.
Copyright © 2026 William Blair. William Blair is a registered trademark of William Blair & Company, L.L.C. “William Blair” refers to William Blair Investment Management, LLC and affiliates.
