Asian and EM fixed income: how higher global spending is driving credit markets

Looking ahead to H2, our conviction in Asian and emerging‑market (EM) credit¹ rests on a simple observation: the shifting global backdrop structurally supports growth in the region and fixed income as an asset class.

While we expect the Iran conflict to de escalate gradually, we recognise the emergence of a more fragmented geopolitical landscape that is marked by higher spending as governments prioritise security, resilience and strategic autonomy. Fiscal restraint has given way to sustained investment across defence, sovereign AI and energy infrastructure, positioning Asia and EM as central drivers of global expansion.

Capturing the next phase of global growth

Across the region, capital spending is accelerating. Countries are seeking to secure supply chains, reduce reliance on concentrated sources of critical inputs and build domestic strength in areas such as semiconductors, energy and artificial intelligence. This is not simply defensive – it is about capturing the next phase of global growth. 

For Asian and EM USD credit markets, the implications are clear. Greater investment is improving revenue visibility, supporting cash flow generation and broadening demand across sectors. Meanwhile, the quality of growth is strengthening. The balance sheets of many Asian and EM issuers are stronger than in previous cycles. Domestic demand is also playing a larger role, reducing dependence on external drivers and adding resilience to economic activity. 

Within Asia, the risk of downgrades appears limited. Default expectations in high yield remain low, while in investment grade we continue to see scope for spreads to tighten as corporate fundamentals and balance sheets improve.

Higher energy prices: near- vs long-term impact

The Iran war is leading to higher energy prices in the short term, but the impact has not been uniform. We see clear variations across EM and Asian countries, as well as by individual sector – some areas and sectors stand to be beneficiaries whereas others face headwinds. This reinforces the need for selectivity amid a longer term shift toward strategic self-reliance. 

In the coming years, the conflict is likely to accelerate a long-term global shift toward strategic self-reliance in energy and defence, accompanied by persistent fiscal expansion and a more state-led investment cycle. In this context, today’s inflationary energy shock may ultimately give way to a period of greater supply resilience and lower long-run energy prices.

Today’s beneficiaries of elevated energy prices may differ materially from those favoured in the next phase, underscoring the importance of timing, deep research and selection

For investors, this implies that today’s beneficiaries of elevated energy prices may differ materially from those favoured in the next phase, underscoring the importance of timing, deep research and selection.

Read also: Emerging Value Bond – introducing our approach to capturing the growing opportunity in EM credit

Durable tailwinds for a multi-year bullish phase

Ultimately, what stands out is the durability of these tailwinds. A world that is investing more heavily in security, infrastructure and technology is one that supports sustained growth – and one where Asian and emerging‑market credit is well positioned to benefit. 

For these reasons, we believe that the region is in a multi-year phase of abundant liquidity that is becoming deeply embedded across funding markets, corporate balance sheets and investor positioning. For a region with already substantial domestic savings pools, this influx of capital is likely to remain a powerful tailwind in the years ahead.