Where is the value in local fixed income? - updates on our country views

At mid-year, we argued that EM local fixed income had delivered a disappointing first half, as the Iran conflict and a hawkish repricing of Fed expectations offset otherwise supportive fundamentals. While EM local markets recovered quickly from the March sell-off, they lagged behind the stronger rebounds seen in EM credit and EM equities. Since then, the external backdrop has become more challenging than anticipated, with renewed Middle East tensions, higher oil prices, rising inflation expectations and a sharp repricing of core rates weighing on local duration markets. Despite these headwinds, EM local markets have remained relatively resilient. Q3 performance has been driven primarily by EMFX, while duration has struggled amid the sell-off in USTs. Nevertheless, overall returns have compared favorably with USTs, US IG credit and even EM IG credit. Looking ahead, the environment remains difficult, but recent pricing adjustments have materially improved valuations. Real rates, risk-neu