GEMs Flow Talk: Crossover investors, increasing EM allocs, but low conviction on EM returns

Research evidence excerpt

GEMs Flow Talk: Crossover investors, increasing EM allocs, but low conviction on EM returns

Exhibit 2: EM Debt Facts at your fingertips

Positive and negative market stats

Positive technicals of EM investing today EM painful history in early 2020-24 is now in the past

Flows and crossover sentiment

• 4Q25 LDM foreign holdings showed investors were net buyers (+$26bn) of EM local govt • Fleeing China: Foreign holders of China local debt sold over $40bn in 2024-2025,

bonds ex-China, after being also net buyers in 3Q (+$23bn). China LDM funds AUM tracked by EPFR fell from a high of $57bn to around $10bn as of Mar

‘26.

• EXD has seen consistent inflows overall since end of April 2025 • EXD had seen cumulative outflows from 2022-24 (-25% of AUM).

• ½ of IG crossover investors are increasing EM debt vs decreasing it.

Defaults and Ratings

• Default rate in last 3y dropped to 0% after a wave of restructurings from 2020-2022, • Sovereign defaults in 2020 hit 10% of face value of all sov bonds, (of $1.2tn face value).

Default rates in the last 3y, 5y, 10y & 20y have been 0%, 3.4%, 2.5% 1.3%.

• Only 8% of total of USD sovereign debt is in default or is rated CCC or below now vs over • 18% of face value in the EMGB index in Jan 2020 has defaulted at some point between 2020

10% in 2020 and 2023.

• 60% of USD sovereigns are IG • 32% of face value in the DGHY index in Jan 2020 defaulted at some point between 2020 and

• 77% of USD sovereign HY (DGHY) are rated B or better now 2023

• Asia: No defaults have occurred in the APAC credit index YTD, driving the 12m HY default • There were only $72bn CCCs or below that were not in default in Jan 2020.

rate fell sharply from 13%/7% (amount/count) in Asia at end-Oct 2024 to 0.6%/1.4% at Almost all of them defaulted (4 issuers, AR, EC, LB, ZM).