Emerging-market bonds are a country-selection game for insurers

The label 'emerging market' covers more than 55 countries, with different currencies, policy regimes and credit stories. Dilawer Farazi, co-head of the emerging-market debt team and a portfolio manager, says insurers that treat the label as one asset class are missing the point. In a Q&A published by Insurance Asset Risk, he argues that emerging-market corporate bonds have become an underappreciated source of resilient yield and diversification for insurance portfolios.

Farazi starts with a warning about aggregation. Emerging-market fixed income is not a single market, he says; the spread of outcomes across countries matters more than the category's average. This is not a hedging statement. An allocator can choose the countries with the strongest reforms and the most credible policy frameworks, rather than buy an index that blends them all.

Farazi points to the reform record. Across most emerging markets, he says, economic structures have improved. Monetary policy is more disciplined, fiscal rules are in place, inflation targeting has taken hold. Governments have accumulated foreign-exchange reserves that give them room and flexibility to manage shocks. These are the tools of a country that can absorb bad news, not one that needs a bailout.

The funding story reinforces the change. A growing share of emerging-market corporate and sovereign issuance is denominated in local currency, which insulates borrowers from Federal Reserve moves and dollar swings. Debt sustainability improves as a result. For an insurance general account, the effect is direct: the currency mismatch that used to make emerging-market credit a leveraged bet on US policy is shrinking. The same borrower, funded differently, is a different risk.

The macro picture adds support, though not certainty. The International Monetary Fund's global growth report from April 2026 was produced during an energy shock. It downgraded global forecasts but still showed emerging-market growth of 3.9% this year. Developed markets, by comparison, were seen growing at 1.8%. Demographic advantages in emerging markets support that relative growth. That gap explains the continued interest.

Farazi is not selling a forecast. Forecasting disruptions, he says, makes for a good dinner conversation; a resilient portfolio built on fundamentals and a clear weighing of risk is the better use of time and capital. That is the discipline of an insurance buyer. General-account portfolios exist to pay claims, not to call the next shock.

The diversification argument rests on the same point. Emerging-market corporate bonds, Farazi says, combine strong fundamentals, supportive technicals and a variety of opportunities. That variety is what separates the asset class from a macro bet. Across more than 55 countries, an insurer can hold the countries with the strongest reform records, avoid the weakest, and build a portfolio with a different risk profile than a domestic-only book.

None of this is unconditional. Emerging markets have faced their share of challenges in the past few years, Farazi acknowledges, and the energy shock is a reminder that surprises arrive. The difference is structure. Countries with credible policy frameworks, reserve buffers and local-currency funding have more room to absorb the next disruption. Those without them remain what they always were.

The next emerging-market growth print will not settle the question; the reform record will. It shows which countries keep funding locally, hold reserves and stick to policy discipline, and which ones stall. If that record keeps improving, the category average will understate the quality of the best credits. If it deteriorates, the average will hide the damage. Watch it country by country.