Jonathan Davis:

Hello and welcome to another PineBridge Investments podcast. I'm Jonathan Davis, Fixed Income Client Portfolio Manager, and I'm joined today by four members of our Global Emerging Markets Corporate Research team to discuss expectations for EM debt, starting from east to west. We're joined by Kelvin Heng in Hong Kong, Edward Iley and Devin Stewart in London, and Kathleen Monticello from Santiago. 

It's the morning of June 24th we're right about six months in through the year. It's been quite a busy year in terms of macroeconomic developments. The preeminent global macro story that we'll start today has been US tariffs and the impact on the global economy. After the initial volatility of April, risk assets globally have advanced, supported by delays in implementation and easing of trade tensions between the US and China. The term tariff fatigue has been used a little bit to describe the markets, sort of shrugging off what is still an uncertain tariff picture. But in the case of Emerging Markets, the recovery in asset prices we feel is much more rooted in the relatively limited impact of US tariffs on EM broadly, than a complacency regarding tariff risk. 

And with that in mind, maybe we could start with each of you getting a bit more of a bottom-up context of how tariffs are influencing your conversations with corporate management teams, your expectations for growth. Kathleen, maybe we'll start with you, given the regional proximity of Latin America. How would you characterize the impact that you have US tariffs are having and will potentially have on Latin corporates over the coming months and quarters.

Kathleen Monticello:

Hi. JD, thanks. Yeah. So in Latin America, Mexico is probably the country that has been and could be most affected by the tariff policies that we've heard from the Trump administration. And so in recent months, we've seen that investments in Mexico and near shoring specifically has been paused, but positively, now that we've had some resolution on what those tariffs are going to look like, we do see that slowly reactivating. 

So, we expect some reshoring activity back to the United States in capital intensive sectors and national security related sectors, but we believe that Mexico is going to continue to be an important trade partner of the United States, especially if inexpensive labor is going to be less available in the United States. You know we see that the USMCA negotiations and some bottlenecks in infrastructure and energy, those remain headwinds for near shoring. 

But, speaking with companies recently, we spoke with a Reit that says that they are re engaging with clients to reopen lease negotiations. They're waiting for some clarity on the USMCA, but they think that the outlook now is much, much clearer for them. We've also seen, with the tariff developments, a bit of decoupling with US and China and we see Latin American companies looking to take advantage of some of the market opportunities created by the tariffs. 

We see some Latin American protein companies that are now able to access new markets that they had not been able to prior to the trade distortions created with China. So, as I mentioned, I think there are a lot of options there for Latin American companies to look for new markets, when they see that previous suppliers now have a disadvantage to supply a certain market. So overall, yeah, we see that they're adaptable, and because of their diversification, Latin American companies are able to adapt.

For example, we know of a Brazilian based auto parts producer that just won a contract to supply an engine block at one of its Mexican plants to be used in heavy trucks to an OEM in the US. So, this will replace a European supplier. So, we see that some of the distortions created in trade are creating opportunities for Latin American countries. So we think that, the US trade relationship, and the trade relationships throughout the region, will continue to be solid, especially the US and Mexico, considering that those supply chains have been put in place for decades. And tariffs are reversible and can change. So overall, we see the impact of tariffs on Latin America as relatively benign at this point.

Jonathan Davis:

Great, thanks. Kelvin, I think you probably could guess where I was going next. And we mentioned China a few times already. Maybe we could just start with you, broadly speaking, what's the view on China macro? Obviously, a lot of policy changes over the last few weeks. Where do we stand right now in terms of China macro?

Kelvin Heng:

Yeah, thanks. JD, I think in terms of the macro for China, our expectation at least coming into this year has been for slowdown, but a manageable slowdown. So last year, the growth was quite uneven across segments, but China still managed to hit their 5% target overall. We think some of the drivers that that were underpinning last year's performance are going to be tough to repeat, particularly on the trade front, net exports made up about 30% of the overall growth figure last year, that trade surplus was nearly a trillion US dollars. 

So, it's going to be hard to see an improvement on that, given the trade tensions, even with things having come off the boil temporarily. You know otherwise, deflationary pressures are still a challenge. The real estate sector continues to struggle. There are tentative signs of stabilization that we're seeing in some top tier cities, but generally speaking, inventory levels in the lower tier cities continues to be pretty problematic. 

So that's a sector where we're going to continue to see things being a drag. But I think overall, when we look at 2025 we had come into the year with a base case that we'd land somewhere in this sort of four and a half percent growth area, which reflects that slowdown, but again, a manageable one. After the latest easing in the trade tensions that we've seen with the US and China, our Sovereign Team, has slightly increased those expectations to about 4.7%. Now obviously, given the fluidity of the tariff situation, there's going to be downside risk around that if tensions start to spiral again, but at the same time, there is ammunition on potential stimulus to cushion the blow, and if negotiations end up going better than expected, then we may not see them sort of having to pull that lever to the same degree. 

I think when we look at the bottom-up at “China's Dollar Credit Universe”, an important point to mention is that the number of names with actual direct revenue exposure to the US is quite negligible, and that's actually the case across Asia Credit as a whole, but it's certainly true for China as well. 

So our team, when we screen the entire investable universe in Asian Credit, what we found was only about 3% of the credits in Asia had more than 10% of revenue coming from the US. And then if you zoom into just China, that figure was less than 2%. So, it's a universe which is quite insulated, at least when it comes to the direct fundamental implications from the tariffs. 

The other thing I just mentioned is that for China IG, two thirds of the issuers are actually SOE related, or have some form of state linkage. So not only does that add another layer of support if there's external headwinds, but it's also a segment of the market which has been a major beneficiary of the easing that's been happening on shore. And then you drill down to the other third of the China IG names which are POEs, big chunk of these are internet names, which are almost 100% domestically focused with robust sort of net cash balance sheets. 

So China IG, we do view as a market with defensive characteristics in that light. Within high yield, I think the story is a lot more idiosyncratic. The property names that we cover are generally still struggling fundamentally. The stimulus in that area has been pretty tepid overall, but at the same time, that's a segment of the market which is significantly smaller today than it has been in the past. Outside of China property, you do have consumer related or other domestic related names and segments where the fundamental trends have been a lot more favorable. 

So, there's quite a divergence between segments, between names. But just going back to tariffs, I think across the board, direct implications look quite limited from a bottom-up perspective.

Jonathan Davis:

Great, thanks. And you hit on a point that we make quite a bit in conversations, both within the house and with partners outside the firm. When you're thinking of Emerging Markets, the EM corporate bond market does provide just a wealth of diversification opportunities to, as you say, you can take advantage of defensively positioned China names, even in a world where China related macro risk are kind of driving headlines, and I think that's important to highlight. 

So thank you very much, Kelvin. Sticking on sort of this theme of China, and Kelvin, you did mention deflationary impulse within China, one of the sort of themes that gets talked quite a bit about, you know, the China rerouting of trade is that China will start exporting deflation to the rest of the world. And from a macro perspective, you know that we provide greater flexibility to central banks across the world, particularly within EM, where we do see sort of a more defined impulse towards rate reduction across most EM central banks, but it also can create risks at the corporate level. 

Maybe Ed, I'd like to bring you in here. How are corporates within the CEEMEA region, that is Central Eastern Europe, Middle East and Africa, how are those exporters viewing competition risk from cheaper Chinese goods entering their markets.

Edward Iley:

Yeah, thanks JD. Yes, this was one of the major risks we flagged at the beginning of the year with respect to the indirect effect of tariffs on the CEEMEA space. So, competition from China had already been high before the impact of tariffs last year and into 2025, both domestically, for Turkey and South Africa, but also for the major export markets in Europe. And we would expect this to increase if higher tariffs remain on China relative to other countries, and this economic decoupling between China and the US gathers pace. 

The fuller impact is really going to depend on whether we see policy makers in senior markets initiate policies to protect against Chinese dumping. So, Turkey has already taken some actions on this to protect domestic industries. However, Europe has not. So, Europe does remain potentially having increasing competition, and we do not see them as likely to take action soon. 

Finally, we just say, companies most exposed to the risk of this competition, where China competes in similar goods, where they can also easily increase demand to the US as an offset, and also they have low customer stickiness based on either cost or proximity advantages. That's it from my side.

Jonathan Davis:

And I would be remiss if in this discussion on tariffs, I didn't ask for your quick thoughts on the relative exposure of many of the names that you all cover in the region, the exposure of those names and those industries to US export revenue, or are they largely not partners, trade partners or exporters to the US?

Edward Iley:

Yeah, so we did this exercise last year, and we saw the vast majority have either zero or very little direct exposure to the US in terms of exports. Some do have some operational subsidiaries in the US. But again, these aren't particularly material. I mean, where we did see the most would be some Israeli names, but overall, yeah, very, very limited in terms of direct exposure to the US.

Jonathan Davis:

Great. Thanks. So again, as a sum from the bottom-up and as I said at the outset economic expectations for Emerging Markets, even at the height of tariff uncertainty, were far less sort of downward revision sensitive than you would find in Developed Markets and in the weeks since, where we've had delays in retaliatory tariffs, we've had progress towards trade deals between the US and China. We've seen a recovery of those expectations for EM that we have not yet seen in Developed Markets. 

Again, to circle the square from both bottom-up and top-down, we are getting a more sanguine view of the risk as they relate to EM. I'd like to shift now from more of the economic to political risk, because, certainly, part of the historic risk premia for EM is related to political uncertainty. This year, again, has been a fairly quiet political calendar. We've had elections in Romania and Poland and Korea. They did little to change market outlooks or move market pricing. By and large, the thoughts from a macro political spectrum are that it's maybe a little bit more complex, because the big risks are maybe more on the DM side than EM side. 

And when we look ahead to the election calendar, we do have some elections in Latin America which could potentially impact expectations, but very little election activity on the calendar in the other regions. So maybe Kathleen, we could start with you. What are the top-down expectations for elections? How are companies thinking about risks related to the election calendar in Latin America?

Kathleen Monticello:

Sure. So we have four important presidential elections in Latin America in the next, I guess, around 18 months, Chile, Peru, Colombia and Brazil. And at the moment, we expect this anti-incumbent trend to continue that we've seen throughout the world and in Latin America. And we see that security and immigration are some of the important issues in Latin America, as well as growth and inflation impacts on voters.

So, voters are pushing for it, for candidates to have these topics on their agendas. But considering that anti-incumbent movement, we do expect more market friendly governments in Chile, Colombia and Brazil going forward after these elections. 

So, this could lead to better growth, stronger consumption, investment, and potentially lead to better credit metrics for the sovereigns. We would expect that this could also revive capex spending, leading to incremental debt for some of these corporates. You know, we see that sort of as a positive at the moment, because leverage is at historic lows for many of these companies, and we see that there's room to invest in capex, and we're eager for more supply, more opportunities to invest. 

So, we see that the issuers are looking for stability, less uncertainty on the global outlook, but within their own countries and less uncertainty on the business environment. They want consumer confidence to improve, and that would allow for higher growth. They also want local governments to be able to continue on monetary easing, which should allow for better financial conditions, locally, for growth and for consumption, and so the US monetary policy and inflation environment there, is an important input for that. 

Jonathan Davis:

Great. Thank you very much, Kathleen. Ed we'd like to bring you in here. As I mentioned at the outset, this is June 24th so we are, I guess, several hours into what is looking like a potentially tentative, shaky, at the moment, ceasefire between Israel and Iran, which is, of course, the latest sort of unfortunate geopolitical risk to take root in the Gulf.

Knowing the recency of this conflict, but thinking bigger picture, right, You've been dealing with, tension in the region and potential rerouting of trade for, I guess, now coming up on18 to 19 months. How has that influenced management teams in the region? How have you gotten, different types of results, maybe than expected, or not different results than expected from the corporates within the Middle East, as a relative result of the geopolitical volatility that's been IN the simmer since basically October of 23?

Edward Iley:

Yeah, sure. So as you say, JD, geopolitical risk has remained high over the past two to three years in the region. And yeah, most recently, we've seen the sort of more severe escalation between Iran and Israel. So, on the negative side, the conflict in the region has led to disruption in the Red Sea, which we have been seeing over the past two to three years, and this has led to some weakening impacts on the port operators in the region. 

There has also been an increase in freight rates, which has had some negative impacts in terms of the exporters in the region to markets in the area. I would note the direct impact on Israeli corporates has been limited. Both banks and utilities have seen minimal direct fundamental impact, and while they have not been issuing in the market, they've had access to local funding, and maturity schedules have been manageable. So limited in direct impact on the Israeli corporates. 

Finally, I would just note that while it has seen increased regional uncertainty, especially the UAE, has tended to be seen as a safe haven in the region, and an example of this has been in the real estate market, and especially in Dubai, where the market continues to be very strong and continues to be supported by international buyers, robust GDP growth and strong immigration inflows and tourism. So overall, despite the volatility GCC corporates have maintained healthy credit metrics, and we would expect this to continue.

Jonathan Davis:

Great, thanks. Sticking with the GCC and the recent risks, Devin unfortunately, I'm going to bring you in on what might be the most challenging, most fluid question of our conversation today. You know, as mentioned, this is again June 24th, we do have sort of a tentative cease fire between Israel and Iran, and news of that did see oil prices decline back towards the mid-60s overnight, and in the early trading this morning. Again, understanding that the ground continues to kind of move beneath our feet and seems to be progressing towards a peaceful direction, what are your expectations for oil prices, both over the near term, and thinking out a little bit more into the medium term? And then maybe just get some thoughts on how that might impact some of the Oilers that you cover?

Devin Stewart:

Yeah, absolutely, it was two weeks ago that we were talking about a potential Saudi Arabia led price war, bringing prices down, and now we're maybe a bit more focused on the geopolitical risk premium bringing prices back up and back down as it begins to dissipate. Overall, when we look out in 2025, I think we see average oil price in the high 60s. And I think when we talk with oil companies, they tend to not even think about it that directly with a spot forecast, instead thinking about it a bit more as a range where there's some support for oil prices at the low 60s and maybe some downward pressure in the upper 80s. 

So, the support on the bottom side, a lot of that comes from the US. One, the US strategic reserve remains at only 400 million barrels compared to previous peaks around 700. And additionally, US production has higher costs of production in those low 60s, high 50s. So that that supports oil prices when they get down into those low 60 levels, and on the upside when prices begin getting towards the 80s, it's been very clear that Saudi Arabia and OPEC, more broadly, want to increase production, both to support significant domestic spending, but also to encourage compliance with OPEC levels. 

Currently, as you mentioned, geopolitics has been a massive driver of oil prices. Closing the Strait of Hormuz, 60% of oil goes through seaborne transportation methods, and a third of that goes through the Strait. Therefore, any closure of that would have a very material impact. We view any closure that could occur, whilst it's not the base case, would likely be short lived as Iran lacks the military infrastructure to be able to enforce that. And also, whilst infrastructure has been targeted in the most recent escalation, export infrastructure has largely been avoided. 

In terms of where “the Oilers” currently sit, we see three reasons why they're quite sanguine despite the volatility and the potential risk of lower oil prices than they've seen over the last couple of years. One, we've seen a material amount of hedging, so most companies are hedged 50 to 75% up to two years out. Two, we've seen a lot of oil companies increase gas production overall. And last but not least, as I mentioned, a lot of these EM oil producers have extremely low costs of production, both in the GCC, but also broadly in Sub Saharan Africa.

Jonathan Davis:

Great. Thanks a lot, Devin. And you mentioned gas production, both the oil and gas futures markets, in the oil futures market, there’s a bit more sort of consistency in that view, as you mentioned that Saudi production would kind of see a gradual decline of prices. In the gas market, we do have a bit more volatility in future spot pricing, but we do see sort of an upward trend. 

So, again to your point on gas revenue being another sort of driver of the credit trend, a positive credit trend for many of the EM oil and gas names, that's a great thing to highlight, and it does kind of serve as a good counterpoint. You know, oil in the low 60s, for none of the “Oilers” that we cover in the region, or in any of the regions, I should say, really results in a credit event, maybe, which is a bit of a contrast to what you might find within the US high yield space. So again, it’s an important distinction to make when we're talking about EM, oil and gas. 

Kelvin, you don't mind if I could bring you in and just shifting a little bit away from oil and gas for a moment, thinking in terms of base metals. China is certainly the world's largest consumer of industrial metals, over half the demand for steel and iron ore, copper and aluminum comes from China. How is maybe a realignment of Chinese exports, or a rethinking of Chinese exports in industry, how's that playing out in terms of demand and pricing, or supply and demand within the region, broadly Asia, in terms of suppliers to China and maybe competition then coming back in from China, and maybe in the case of steel in particular?

Kelvin Heng:

Yeah, I think, with a lot of that, it is going to be quite resource specific. I think just in the context of what's been going on with the trade tensions and tariffs. Our expectation is that, during this kind of 90-day window of reprieve or truce, between the US and China, what's probably likely to happen is that we are more likely to see more front loading of trade, of manufacturing and sort of metals demand in fear of future hikes to tariffs. 

So, it may be the case where we have some resiliency and data kind of near term, but we could start to see, more pressure starting to build from third quarter onward, as you kind of get payback on that front loading. I think anecdotally, when we speak to some of the other regional commodity peers, outside of China, one thing that does come up a lot is the spillover impact from Chinese over supply in certain commodities. 

So, you talked about steel. You know, for example, regional steel companies that were kind of engaged with India, Indonesia or Korea, they've been highlighting that more and more imported Chinese steel has been flowing into their markets at low prices relative to domestic production. 

That has been putting pressure on pricing and on credit profiles. Some of the names in those markets have started to see downwards rating pressure as a result as well. And that's also caused some of these names to actually scale back some of their own capex, to kind of pull that lever to protect their credit ratings. 

So more recently, I think one thing that has happened is some of those impacted regions have been increasing safeguard duties. So that is something that may at least offer some relief in the near term. I think elsewhere, in some of the other base materials, coal credits that we monitor in Indonesia, China tends to be the largest export market, and what we have heard is that there does continue to be a build-up in inventories in China as demand has been more subdued. 

And looking at the data year to date, overall, Chinese thermal coal imports are down year on year, in double digits. So that's certainly having an impact on some of the Indonesian producers. So, I think certainly, if the trade war intensifies, if that leads to more oversupply in certain markets, we would be expecting more spillover impacts to some of the regional commodity peers, like the ones I just mentioned.

Jonathan Davis:

Thank you very much. I'd like to maybe shift from more of the kind of near term to something that I think is a universal longer-term concern of governments around the world, and that is their ability to produce sufficient energy to drive next gen economic potential. And it provides a good lens into sort of the institutional improvement that we see across much of EM, that in our view, maybe might shift the conversation in terms of what is the appropriate risk premia and valuation for owning EM assets. 

And you can kind of see it with the way that, as I say approaches may vary, but we do see more of a professionalization, greater efficiency, greater sort of “market-based solutions type of approach” being found across EM with respect to this energy question. And again, this is not something that's unique to EM, where there is an energy shortfall - this is global energy demand.

Looking forward, it could be a gating factor on economic potential over the longer term. So again, as I said, this is maybe a bit more of the longer term, it’s the sort of esoteric part of this conversation, but one that I find particularly interesting, and we have two experts here in their respective regions who can provide some perspective on how those approaches have been a bit more supportive to our long term expectations for growth, but also differ in terms of how there's maybe more than one way to attack this issue. 

Ed, starting with you, Saudi Arabia has a very ambitious infrastructure agenda that they're pursuing, their Vision 2030. Obviously, it is put great demand on the energy infrastructure within the country, they're hosting 2034 World Cup, expectations for tourism, that could see some of the upwards of billions of visitors to the country over the coming years… how are they investing and planning to meet the demands of energy that their larger sort of economic agenda might require?

Edward Iley:

Sure, yeah, so Saudi Electricity, along with other national utility companies in CEEMEA, have had very significant investment over the past few years, both to meet the rising energy demand in Saudi Arabia, as well as to meet its climate goals, as set by the Saudi Government. So, the capex for Saudi electricity has primarily been focused on the transmission distribution segments, and a key focus within this investment has been on integrating renewable energy into the grid, as opposed to a lot of investment going into generation. 

So, through these investments in renewable energy generation, through increases in independent power producers, as well as through Saudi Electricity’s organic generation, the group is expected to develop the renewable energy share in electricity generation in the Saudi grid to 50% by 2030 and also target net zero emissions by 2050. While this capex does provide some near term balance sheet pressure to the group, over the long run, this is supportive for the credit profile of the company, and we do see this as a positive.

Jonathan Davis:

Great, thanks very much. Kathleen, maybe a bit of a different story traditionally in Mexico, where the shortfall, or perceived shortfall, of energy was kind of looked at as a hindrance on economic potential in the country, and the approach of the last administration was one that most found inefficient, putting it politely, in terms of meeting the energy needs of the country. 

But we do see a market shift in the current administration, and how they're approaching the issues with respect to energy capacity in Mexico. How are you viewing that shift, and how's that factoring into the potential for Mexico to participate in that near shoring that you mentioned earlier on the call.

Kathleen Monticello:

Yeah, so as you mentioned, the energy sector in Mexico has been under invested for many years, and now there's more urgency to address those issues. Reserve levels are now below 6% and in warm periods, we do see blackouts occurring, and energy consumption is expected to increase around 3% annually through 2038, given the expected economic growth of Mexico, which includes an important part of the near shoring demand that's going to be happening. 

So, last year, when President Sheinbaum took office, she released a plan called “The Plan Mexico,” which detailed various aspects of her agenda. And since then, there has been some additional legislation put forward, including an electricity sector law earlier this year that seeks to maintain the ideological goals of Morena, which is a political party of the previous president, AMLO and Sheinbaum. And those include energy sovereignty, affordability and reliability. 

But now they really need to address this shortfall they have in generation and particularly the under investment in transmission and distribution. So, the new plan calls for investments of $32 billion between now and 2030 with 22 billion in generation projects, and the rest distributed between transmission and distribution. And this should add 30 gigawatts of generation capacity in the next five years, compared to current capacity of 90 gigawatts. So, it's an ambitious project and we see some positive aspects of how it has been developed. It hasn't changed the current operating conditions for the players in the market, investment agreements will continue to be adhered to, and it's creating opportunities for some of those players. 

But the most positive part, really, is that we see Sheinbaum actively engaging the private sector and how they're going to allow them to participate in this growth. And so, they are bringing them to the table to discuss the rules on the mechanisms that will allow for private sector participation. 

So, we think that this plan has the potential really to address some of the needs for the Mexico energy sector and also allow for more private sector opportunities that are interesting for us as investors. There are some concerns, because it does create the potential for inefficiencies and some market distortions, because CFE has full control over dispatch, and we could see some potential hindrance of energy diversification, and also the issues with the USMCA, because CFE does receive a preferential treatment in the system, which may be complicated considering the rules of the USMCA.

But overall, we see several issuers in this sector that are attractive because they do offer stable, typically diversified assets, strong operating track records, high plant availability, their contracts are mostly USD denominated that have full fuel cost pass through their PPAs and management teams that communicate well with us. 

So, we see upside for those companies and for other companies that want to participate in the sector, in this new opening up to the private sector. There are risks that they may not be able to come up with the mechanisms that allow for attractive incentives for private sector companies, and we're monitoring that. But we think how we're invested now, and the companies that we see now, look to benefit from the current proposals.

Jonathan Davis:

Hearing you conclude with the more bottom up differentiation need between companies that are participating in this, you know, meeting of higher energy capacity, really does kind of illustrate, there's one thing to have a top down sort of thesis on EM and we can talk quite a bit, as I mentioned earlier, the opportunities for diversification within the corporate market, but the devil really is in the details and I think, having a team that's so close to management and the regions is really important and fortunately we're benefiting from your expertise on this call and your colleagues in all your various offices.

So, thanks again for that. 

Now, with the fundamental conversation kind of revealing to us on a consistent basis throughout the year that EM fundamentals are strong and fairly resilient, in the face of heightened macroeconomic uncertainty, as again, I mentioned, more emanating from the Developed Markets than EMs themselves when you think across credit markets, valuations are tight. Again, it's worth mentioning over and over again, from a fundamental risk perspective, you can find justification for risk premium being on the low end of the historical range. 

I want to bring in one more final angle to this conversation and the outlook for EM, and that is on the technicals, particularly the corporate bond market, where we've had negative net financing from 22 onwards, which is expected to include this year as well. 

We're right around neutral net financing for the year so far, but expectations for most of “the street” are for negative net financing. For those who are listening in, who are curious, what does that exactly mean? What it means is more cash being returned to investors, either via coupons, amortization, tenders, buybacks, calls, than is actually being printed in the primary market. 

So, you have more pools of capital chasing fewer bonds than are being issued into the market. But I don't think from our conversation, we view that as a crisis of illiquidity and Kelvin, I'm thinking of you, given that Asia is kind of the largest contributor to this negative net financing phenomenon. How would you characterize the funding environment for the corporates that you talk to in Asia?

Kelvin Heng:

Yeah, you nailed it on the head. I mean, that's one of the biggest themes in our market. I think when we take a look at supply, at least here in Asia, the expectations that we're going to have a pickup in gross issuance versus last year and first half has so far, been on track for that. I think the number that most houses are kind of estimating here is in the ballpark, about 180 billion here for Asia, right, which is more than the 150 billion that we saw last year. 

But that's actually a pretty low base versus historically, what the asset class has seen in the years pre 2022 and overall, even with that increase, just as you mentioned, because of the magnitude of redemptions and coupon inflow, that still leads us to a negative net supply figure of around 40 to 50 billion, which is very meaningful, and it does add to the support that the market is getting from a technical perspective. 

I think the big driver of that is just the strength of onshore markets and alternative funding sources. And that's a consistent theme that we're hearing from companies that we meet with, whether it's issuers in China, India, Indonesia, the onshore funding access is just very robust in these markets, and the breadth of that onshore access in some of these areas has actually been increasing further. But also, more importantly, the cost is so much cheaper than what they can expect to get in the US dollar bond market. 

So, one example here is renewable companies in India, they used to be one of the fastest growing segments of the Asian high yield market in terms of issuance before the hiking cycle in sort of 2022. That issuance is almost completely dried out because the onshore alternative has just been that much more attractive. And over recent periods, there's been many cases where certain companies are basically choosing to tap on shore and take out their US dollar bonds early. 

In some cases, they've been able to save upwards of 100, 200 basis points on the cost. And we see similar trends for corporates in the other regions and segments as well. Asian central banks across the board have hiked far less than the Fed over the past hiking cycle, China's actually been easing. And so that gap in rate differentials continues to be very meaningful. 

So, I think until we see some of those differentials close, it's quite hard to see that dynamic reversing in a very meaningful way. So that technical dynamic has definitely been an anchoring impulse within our market for sure and has been quite evident.

Jonathan Davis:

Yeah, that's great. And you know, as you mentioned, an anchoring effect, right - we now have two regions, within Asia and the GCC catching up, where you have a very strong regional buyer base even for the dollar bonds, right - real money, institutional investors that provide a stability of demand for those bonds that supersedes more cyclical risk factors that could drive a crossover bid or fund flow bid. 

So, you do see much lower beta within, as you said, the Asia high grade market, or the GCC high grade market, which again, just adds to the ability of investors and investment managers to manage cyclical risks within emerging markets that typically they might have been a bit more subject to in terms of market beta. 

Thank you all very much for the conversation. Again, as I mentioned, the difficulty for investors in today's marketplace is credit is expensive, but not owning credit can be more expensive because those buying opportunities proved to be pretty short lived. And so, for us in global portfolios, we try to identify areas where tech fundamental risks, we're fairly comfortable with. 

That certainly, I think, describes the fundamental risk within EM, when we can get technical factors that support bond prices, we're far more comfortable owning that type of carry, and again, we find that to be the case in EM. 

So broadly speaking, we're happy to source carry and be, involved in the EM bond market, particularly within the EM hard currency corporate market. But as I say, devil is in the details, and we'll continue to work to make sure we get those details correct. 

With that in mind, I thank each of you, Kelvin, Ed, Devin and Kathleen, for joining us. We thank our listeners for joining us as well. For more insights, please be sure to check out pinebridge.com and thank you very much.

ENDS