Skip to main content
logo
  • My Collections
    View saved content and presentation slides
  • Portfolio Analysis
  • Log out
  • Funds
      Contact Us

      Fund Listing

      • Mutual Funds
      • ETFs
      • ETF Range
      • How to Invest

      Capabilities

      • All Funds
      • Alternatives
      • Equities
      • Fixed Income
      • ETF Investing
      • Active research
      • Model Portfolios

      In Focus

      • Investing for Income
      • Investing for Fixed Income
      • Investing for Global and EM Equities
      • Investing for Sustainability
      • Investing for Alternatives
    • Insights
        Contact Us

        Market Insights

        • Market Insights Overview
        • Guide to the Markets

          The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

        • Guide to Alternatives

          Objective insights on alternatives industry trends, with charts and data across private equity, private credit, real estate, infrastructure and hedge funds.

        • Guide to Investing in Asia

          The Guide to Investing in Asia explores the diverse economies, markets and investment trends across Asia, including Japan, India, China and Southeast Asia.

        • Weekly Market Recap

          Finding balance in Chinese equities: export sectors could gain from progress on trade, while domestic-facing companies cushion against global trade volatility.

        • On the Minds of Investors

          What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

        • Podcasts

          Insights from Tai Hui, Chief Market Strategist, Asia, on what is happening in financial markets, from our Asia Pacific headquarters in Hong Kong.

        • Mid-Year Outlook 2026

          Global uncertainties abound: the Middle East conflict, central banks' response to returning inflation, U.S. policy shifts and the fast-changing AI landscape.

        • Solving for Fixed Income

          Exploring how the current environment has affected fixed income's traditional role and the many other opportunities that can accomplish its traditional objectives.

        • Eye on the Market

          Explore Eye on the Market, timely commentary that offers views on the economy, markets, and investment portfolios by Michael Cembalest.

        Portfolio Insights

        • Portfolio Insights Overview
        • Guide to ETFs

          Explore J.P. Morgan Asset Management’s ETF investing guide with insights on ETF market trends and best investing practices for smarter portfolio decisions.

        • Global Asset Allocation Views

          Amid resilient growth and a fading energy shock, we stay positive on risk assets, favoring U.S., Japan and EM equities and U.S. high yield.

        • Global Equity Views

          The profit outlook is cloudier, but we still expect modest growth. Many of our investors favor quality financials and industrials, avoiding high-priced defensives.

        • Fixed Income

          We highlight themes and implications from various fixed income teams to help guide your portfolio decisions.

        • Global Fixed Income Views

          Central bank credibility, solid profits, capex and resilient consumers lift expansion odds to 85%, outweighing inflation and AI headwinds.

        • Sustainable Investing

          Sustainable Insights

        • Alternatives Insights

          We bring you insights based on our nearly 50 years of experience investing in alternatives and more than 800 alternatives professionals around the globe.

        • Long-Term Capital Market Assumptions

          Our Long-Term Capital Market Assumptions (LTCMAs) deliver forward-looking return, volatility and correlation estimates for 200+ asset and strategy classes in 20+ base currencies.

      • Investment Ideas
          Contact Us
          • Latest ideas
          • Alternatives Outlook
          • Sustainable investing
          • ETF Knowledge
        • Resources
            Contact Us
            • All Resources
            • Multimedia
            • Insights App
            • Digital Portfolio Insights
            • Announcements
          • About Us
              Contact Us

              About us

              Backed by $4.6T in assets, we harness our active edge to deliver timely ideas and actionable insights that empower investors to achieve what matters most.

              • Overview
              • Awards
              • Diversity, Opportunity and Inclusion
              • Spectrum: Our Investment Platform
              • Our Leadership Team
              • Our Commitment to Research
            • Contact Us
              • My Collections
                View saved content and presentation slides
              • Portfolio Analysis
              • Log out
            • Financial Professional Login
            Log in
            You are about to leave the site Close
            J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
            CONTINUE Go Back
            Fixed Income Insights

            How I learned to stop worrying and love EM local currency

            ZP
            Zsolt Papp
            Published: 27/05/2025
            “Now let's get this thing on the hump — we got some flyin' to do.” (Major T. J. "King" Kong in Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb)

            Trade of the year

            Emerging Market (EM) local currency has been the fixed income trade of the year so far. This was not necessarily expected; in fact, sell-side analysts preferred EM credit (especially corporate) over EM local currency. As of May 15th, the picture couldn’t be more different: EM local currency is well ahead of EM sovereign and EM corporate credit.

            As the table above shows, EM local currency debt has outperformed other fixed income sectors so far this year. The reference index, JPM GBI-EM Global Diversified, is up 8.6% year-to-date (YTD) as of May 20th, driven, in almost equal parts, by Rates and foreign exchange (FX). It’s not only a USD story. In addition, the performance has been remarkably consistent, with local currency leading every month except February, where it was second.

            Carry On Local

            The EM yield story has been well documented, but we believe it makes sense to recap it. As illustrated in the chart below, EM countries offer significantly higher nominal yields. At the current moment, the average yield in Brazil, for example, stands at 14.2% and the average yield in Mexico stands at 9.5%. Asian and European EM countries are also offering attracting all-in yields as illustrated by Indonesia, India and Romania.

            Crucially, real yields are also elevated in many emerging markets. Brazil, South Africa and Mexico stand out with real yields of 6-8%, reflecting prudent monetary policy and proactive central banks. Even lower-yielding countries, such as Indonesia or India, offer attractive real yields. In contrast, both nominal and real yields in the Eurozone, for example Italy or Germany, are visibly lower.

            What about the USD? Not as important as one might think

            It is often assumed that a weaker USD is essential for positive EM local currency returns. However, this perspective ignores the fact that since the Global Financial Crisis in 2008, EM local currency has returned 86% despite the USD index (DXY) appreciating by 17% during the same period, as shown in the chart below. While USD fluctuations are not irrelevant, their actual impact is less important than generally perceived. A softer USD can help, just as sharp unexpected appreciation can create headwind. Overall, though, EM local currency tends to perform positively in most USD environments.

            As we mention elsewhere in more detail (Breaking the beta myth: The untapped alpha in EM Local Currency Debt), EM local currency debt has profoundly evolved in the last 25 years. Not only has the number of countries in the industry standard JPM GBI-EM Global Diversified index expanded from 11 in 2003 to 19 today, but, moreover, the weight of higher beta markets such as Brazil, South Africa and Turkey has decreased materially. In January 2006, these three markets accounted for 30% of the index, but by April 2025 their combined weight had nearly halved to 15.3%. Instead, lower beta markets such as India and China have joined the index with a combined weight of 20%.

            Another factor often overlooked is the important role played by sophisticated local institutional investors such as insurance companies, pension funds or banks. The dependence on off-shore investors has markedly decreased, leading to an increased prominence of domestic players and, consequently, local macro drivers.

            As a result, EM local offers a diversified source of alpha. The table below shows betas and correlations against a selection of other fixed income asset classes, as well as the USD and crude oil.

            Why now?

            U.S. exceptionalism, whether real or perceived, probably posed the biggest headwind to all non-U.S. asset classes. However, looking ahead, the case for US exceptionalism appears increasingly uncertain. Moody’s said in its decision to downgrade the sovereign rating to Aa1 from Aaa that “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government's debt and interest burden higher. The US' fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”

            This scenario may encourage both non-U.S. and U.S. investors alike to further diversify fixed income portfolios. EM local currency offers potentially  compelling reasons for investment, including  attractive nominal and real yields, a supportive macro story backed by higher growth than developed markets, disinflation and the potential for central banks to cut interest rates. Additionally, EM local currency could provide diversification to developed market fixed income and return potential from Rates and FX. A softer USD, which many observers expect, could provide additional tailwind. This is also reflected in weekly flows to the asset class, which, apart from the first half of April, have been positive since February.

            Emerging markets present potential investment opportunities due to their lower valuations and improved financial stability. Countries like Brazil, India, China and nations in Southeast Asia are positioned for growth, driven by economic reforms and strategic positioning in global supply chains. We believe that investors looking to diversify across both developed and emerging markets to potentially mitigate risks and capitalize on long-term growth prospects should consider adding EM local currency.

            1d2e8bba-363d-11f0-9f4f-2ff87892ca04
            • Currency
            • Emerging Markets Debt
            • Fixed Income
            JPMorgan Asset Management

            • Terms & Conditions
            • Financial Services Guide
            • Privacy Policy
            • Cookie Policy
            • Investment Stewardship
            • Voting Policy
            • Unit Pricing Policy
            • Complaint Resolution
            • Sitemap
            J.P. Morgan

            • J.P. Morgan
            • JPMorgan Chase
            • Chase

            Please note:  Following recent amendments to the Corporations Act, where unitholders have provided us with your email address, we will now send notices of meetings, other meeting-related documents and annual financial reports electronically unless the unitholder elects to receive these in physical form and notify us of this election. Unitholders have the right to elect whether to receive some or all of such Communications in electronic or physical form, the right to elect not to receive annual financial reports at all and the right to elect to receive a single specified Communication on an ad hoc basis, in an electronic or physical form.


             

            All investments contain risk and may lose value. This advertisement has been prepared and issued by JPMorgan Asset Management (Australia) Limited (ABN 55 143 832 080) (AFSL No. 376919) being the investment manager of the fund. It is for general information only, without taking into account your objectives, financial situation or needs and does not constitute personal financial advice. Before making any decision, it is important for investors to consider the appropriateness of the information and seek appropriate legal, tax, and other professional advice. For more detailed information relating to the risks of the Fund, the type of customer (target market) it has been designed for and any distribution conditions please refer to the relevant Product Disclosure Statement and Target Market Determination which have been issued by Perpetual Trust Services Limited, ABN 48 000 142 049, AFSL 236648, as the responsible entity of the fund available on https://am.jpmorgan.com/au.