Emerging market (EM) bonds are increasingly attractive as EM governments have shifted from deficits to surpluses, while developed markets (DM) have accumulated debt and fiscal imbalances. EMs maintain stronger fundamentals, including lower government and private debt, greater central bank independence, and higher real policy rates, factors that enhance stability and yield potential. 

Unlike DMs, EM policymakers have generally resisted moral hazard, allowing inefficient firms to fail rather than absorbing private risk, preserving long-term financial health. Over the past three decades, EMs have achieved persistent current account surpluses through fiscal discipline, contrasting with DMs’ crisis-prone fiscal dominance and policy coordination.

Actively managed EM strategies, such as VanEck’s, have demonstrated resilience through global shocks, reinforcing the case for a strategic EM debt allocation in modern portfolios.

Finsum: With DMs constrained by debt and low yields, EM debt offers compelling diversification benefits, higher returns, and sounder fundamentals.