EM Lens: William Blair’s Assalin Remains Bullish on EM Outlook

The important read-through is that this is being driven more by carry demand and technical scarcity than by a clean improvement in EM credit fundamentals. That tends to favor the higher-quality sovereigns and quasi-sovereigns that can tap the market at tighter concessions, while weaker frontier issuers get crowded out as investors recycle cash into the same benchmark-heavy paper. A second-order effect is that tighter hard-currency spreads can actually widen the gap between strong and weak borrowers because primary issuance becomes cheaper for the best credits and more punitive for everyone else.

Near term, the asset class remains highly sensitive to U.S. real yields and the dollar; EM hard currency is not just a credit trade, it is a duration trade with a global liquidity overlay. Over the next 1-3 months, a backup in Treasury yields or a firmer dollar would likely hit EM harder than the market expects because dealer balance sheets are still thin and cash bonds can gap once inflows slow. Over 6-18 months, the structural bull case only persists if the global default cycle stays contained and refinancing windows remain open; otherwise the weakest balance sheets will face a sharp repricing when the market stops rewarding beta.

The contrarian view is that consensus may be over-anchored to recent performance and underweight crowding risk. When an asset class becomes a shelter for carry, it can look defensive right up until the macro regime changes, at which point liquidity matters more than spread level. The cleanest expression is selective exposure, not blanket beta chasing: own the better credits and be quick to reduce exposure if the rate backdrop turns or if primary market concessions start to re-widen.