Challenges in Emerging Markets Performance

Emerging markets (EM) have struggled over the past few years, underperforming developed markets significantly since the onset of COVID-19. Hard currency bonds in EM fell short compared to U.S. high-yield credits, with local currency bonds also lagging. This decline in performance has diminished foreign investment interest, leading to a notable reduction in foreign ownership across EM equity markets. The general sentiment among investors is pessimistic, with many asset managers shifting focus from EM to developed markets for better returns.