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Asian and EM fixed income: how higher global spending is driving credit markets
Dhiraj Bajaj
CIO, Asia Fixed Income and Equities
LOIM Asia and EM Fixed Income team
key takeaways.
A more fragmented geopolitical backdrop is driving sustained fiscal spending on security, energy and technology – reinforcing Asia and emerging markets as key growth engines
Stronger balance sheets, rising domestic demand and increased investment in the region are improving credit quality for hard-currency issuers while containing downgrade and default risk
Higher oil prices are creating short-term divergence but accelerating a longer-term shift toward self-reliance: this heightens the importance of timing and selectivity, and supports our outlook for the region’s multi-year bullish phase.
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.
Asian and EM credit in H2 2026: resilience, liquidity and structural support
Explore our full outlook, covering favourable liquidity and savings dynamics, how the Iran war will create differentiated outcomes by country and sector, and why the Middle East is a core pillar of supply.
Asian and EM credit in H2 2026: resilience, liquidity and structural support
Explore our full outlook, covering favourable liquidity and savings dynamics, how the Iran war will create differentiated outcomes by country and sector, and why the Middle East is a core pillar of supply.
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.
insights for you.
fixed incomeAsset Management
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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.
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.
To learn more about our Asia Value Bond strategy, click here
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1 Asian and emerging market credit refers to USD-denominated bonds issued by Asian and emerging market issuers.
important information.
For professional investors use only
This document is a Corporate Communication for Professional Investors only and is not a marketing communication related to a fund, an investment product or investment services in your country. This document is not intended to provide investment, tax, accounting, professional or legal advice.
