EM in a Higher Yielding World - Fundamentals Drive Differentiation

The reasons for core (US) rising yields matter. We believe we are entering a more adverse regime for EM. Global growth is still resilient but uneven, while heightened supply-side inflation shocks alongside a more hawkish Fed will likely put net commodity importing EM (without AI-related offsets) under pressures from ToT and funding shock, amplified by FX spillovers. Suppressing inflation pass-through via fiscal means could heighten risk premiums. Aside from India and Indonesia, Poland and Turkey deserve monitoring given looming elections. Many EM real policy rates remain historically elevated, but a number of non-AI Asia (Philippines & India), CEE and Mexico have lower real rate cushion vs. positive inflation gaps. Frontier sovereigns (excluding Kazakhstan & Nigeria) with heavy external financing needs remain most vulnerable. Global growth is resilient but uneven, with stronger tailwinds in Asian economies integrated into the AI capex supply chain (Taiwan, Korea, Singapore;