Emerging Markets
Emerging markets encompass regions with significantly diverging fundamentals and a broad range of credit challenges—from persistent inflation and tightening financing conditions to sluggish domestic demand and geopolitical tensions.
How We Rate Emerging And Frontier Markets
Emerging and frontier markets are strategically positioned to drive global economic growth through the expansion of their domestic markets.
Emerging and frontier markets will play a crucial role in shaping the global economy and driving growth, contributing approximately 65% of global economic growth by 2035. Frontier markets will play a prominent role in this growth due to their favorable demographics—but face significant challenges from persistently high inflation and political uncertainty.
Monthly Highlights
Oil Prices Stay High, Ripples Spread
We revised up our oil price assumptions, now expecting a further delay in meaningful supply through the Strait of Hormuz through the end of May. We project Brent to average $100/bbl for the remainder of 2026 ($15/bbl higher than previously), and as a result see growth this year across emerging markets (EM) to be 20–80 basis points (bps) lower and inflation 50–150 bps higher, compared to our previous baseline.
Oil price shocks and supply disruptions are spilling into other goods, including fertilizers. While fertilizer trade is generally small relative to EMs' GDP, second-round spillovers—via agriculture, food prices, and employment—could be significant.
A prolonged shock from the Middle East war would create uneven but significant credit pressure on EM corporations. First-order stress is mostly felt across energy-intensive sectors—refining, petrochemicals, airlines, and utilities—especially in Egypt, Turkiye, and parts of EM Asia. If disruptions persist, second-round spillovers will broaden to logistics, manufacturing, and agribusiness through higher costs, weaker demand, and tighter financing.
EM benchmark yields and corporate spreads narrowed in April following the sharp March repricing linked to the Middle East war, with dispersion across regions remaining elevated. Financing conditions stabilized but remained tight across EMs, primary markets reopened only selectively outside China. And China again stood out as the main driver of issuance volumes
Latin America
April 30, 2026
Credit FAQ: How Could The Middle East War Affect Latin American Airlines?
The outbreak of the Middle East war in late February triggered the effective closure of the Strait of Hormuz, a critical waterway for approximately 20% of the global oil supply. Additionally, there have been closures of Middle East airspace and airport shutdowns, which have significantly affected international air traffic.
The impact on crude oil and fuel prices was immediate and substantial. The price of Brent crude oil surged, over less than 10 days, to $99 per barrel from $72.25 at the start of the war--even hitting over $120 per barrel intraday. And jet fuel prices more than doubled in a few weeks amid a widening of jet fuel crack spreads (the refining margins above crude oil).
We think the indirect effects from higher fuel prices are a more significant risk to rated airlines in Latin America than the direct effects from airspace closures and route disruptions.
EM EMEA
Maritime chokepoints around the Middle East
March 26, 2026
Credit Conditions Europe Q2 2026: Supply Strains, Credit Pains
Overall: Geopolitical risks cloud the European macro-credit outlook, which started the year fairly positively. Supply chain disruptions could increase inflation, tighten credit conditions, and impair earnings, particularly for energy-intensive industries. We therefore lowered our 2026 eurozone growth forecast to 1% and raised our inflation forecast to 2.4%.
Risks: The Middle East war, particularly the disruption of the Strait of Hormuz, affects supply chains and caused an energy supply shock. Trade fragmentation and political populism increase uncertainty, while AI disruption and cybersecurity threats are emerging structural challenges.
Ratings: Negative sector outlook biases remain, particularly in chemicals and autos. While upgrades dominate among financial institutions, downgrades among speculativegrade nonfinancial corporates have picked up in recent weeks, notably in the chemical sector. In the current environment, we do not rule out that the European high-yield default rate could rise toward our pessimistic forecast of 4.5% by the end of 2026.
EM Asia-Pacific
China and Japan remain the biggest borrowers in Asia-Pacific
Credit Conditions
April 01, 2026
Credit Conditions Asia-Pacific Q2 2026: Choke Point To Stress Points
Energy availability--not prices--is the biggest threat to Asia-Pacific credit. A widening Middle East conflict and the effective closure of the Strait of Hormuz are detrimental to the region, given its deep reliance on Middle Eastern energy and limited reserves. We view supply-chain disruption risk as high and worsening.
External shocks are colliding at the same time. Geopolitical tensions and volatile U.S. trade policy are accelerating supply-chain and trade fragmentation, amplifying the risk of higher inflation. Central banks' monetary easing could stop. Corporate borrowers may face the dual setbacks of slower revenues and higher interest costs. We have raised the financing risk trend to elevated and worsening.
China's domestic challenges persist. Sticky property woes and soft consumption continue to constrain the profitability of Chinese corporates. However, amid signs of reflation and still-strong exports, we lowered the risk around China's economy to elevated and unchanged.
AI and private credit are compounding tail risks. A reset of business models and emerging strains in private credit markets could raise contagion spillovers. Valuation corrections and shifts in financing conditions may add volatility
Frontier Markets
Sovereigns
29 April 2026
Frontier Markets Quarterly Highlights: The Growing Risk Of A Prolonged Energy Shock
The Middle East war is posing a threat to frontier markets (FMs) on three fronts--energy, food, and financing. The effective closure of the Strait of Hormuz has cut about 20% of global oil/liquefied natural gas (LNG) supply and one-third of fertilizer trade, pushing fuel prices above 2022–2023 highs. Central banks poised to ease are now boxed in by costpush inflation.
The food crisis is building on a delayed fuse. Price pass-through lags of six to 18 months mean the worst hasn't hit the consumer price index (CPI) yet. 72 countries worldwide import basic food inputs worth over 1% of GDP--low-income net importers face compounding pressure on food security, external balances, and social stability.
Markets are pricing in de-escalation, but the margin for error is thin. FM spreads are about 36% below the three-year average with respect to December. Issuance was strong around $100 billion through the first quarter, but about $140 billion in maturities loom. Senegal's risk premium has surged to 1,458 basis points (bps) with no IMF program in sight.