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Emerging into the open—the benefits of Emerging Market Credit

April 18, 2024

Fixed income is an important component of any balanced investment portfolio. At CC&L Private Capital, we continually evolve our pension-calibre investment platform and have recently introduced a new fixed-income asset class to our clients' portfolios: Emerging Market Credit.  

What is Emerging Market Credit?

Emerging Markets are fast-growing economies on a journey towards having all the characteristics of a developed economy. They have transitioned from their 'developing economy' stage but have yet to become developed economies. Examples of Emerging Markets are China, Brazil, Mexico and India. There are 69 economies in total.

Emerging Market Credit is a large asset class worth about $4 trillion—three times as large as the US high-yield credit and Canadian bond markets. Emerging Market Credit encompasses investment-grade and high-yield bonds issued by sovereign and corporate entities. 

Characteristics of Emerging Markets

Many corporate credit issuers in Emerging Markets are resilient and high-quality companies. For example, they are often less leveraged than their comparably rated developed-market counterparts: over time, Emerging Markets investment-grade companies have been reducing their debt to just above 1x earnings before interest, tax, depreciation and amortization (EBITDA)—a common measure of a company's leverage. By comparison, US and European investment-grade companies have seen their debt climb to 2.5x EBITDA. All other things being equal, credit investors prefer companies with lower leverage ratios.

Emerging Markets (EM) corporate issuers carry less debt relative to their ability to generate cashflow to service that debt


Net leverage is defined as total debt/ earnings. Earnings more specifically are earnings before interest tax depreciation and amortization (EBITDA). Source: JP Morgan​

Another way Emerging Markets companies differentiate themselves from their developed market peers is by how they are often managed, largely due to their greater experience and familiarity with economic volatility. Emerging Markets corporate management teams tend to build their companies' capital structures to withstand sudden and aggressive economic shocks, as well as sustained economic shocks. They are more conservatively managed in that regard than many developed-market firms. They also tend to perform well in periods of macroeconomic headwinds.

Given this structural setup, it may not be a surprise that Emerging Markets high-yield companies default at roughly half the rate of US high-yield issuers.


Emerging Markets (EM) corporates default less than developed-market peers


Source: S&P Global Ratings Research

Experienced team to uncover opportunities

Our Emerging Market Credit investment management team integrates specialized expertise, extensive market analysis, and insight to deliver dynamic Emerging Market Credit investment strategies. The team has over 50 years of collective experience gained with some of the most prestigious and rigorous asset managers in the industry. After more than two decades of working together, they offer a unique skill set for emerging markets investing.

Understanding and mitigating risk

It's important to have a comprehensive understanding of this complex area. Our Emerging Market Credit investment management team invests the vast majority in US dollar-denominated Emerging Market Credit, which is governed under New York or UK law, as opposed to Emerging Markets debt issued domestically, governed under each issuer's domestic rules and regulations.

Further, our investment management team implements a robust risk-mitigation strategy as part of its investment process. This includes daily portfolio stress tests, stringent credit selection, a risk-reward analysis, and an exhaustive understanding of the relevant credit and legal documentation—and its real-world implications. This helps increase the team's ability to secure investment returns, the bottom line for a fixed-income investor.

Diversification matters

An allocation to Emerging Market Credit in clients' portfolios—replacing some of a portfolio's allocation to North American high-yield bonds—adds diversification since Emerging Market Credit has a lower correlation to global equities than US and Canadian high-yield credit.

Adding Emerging Markets credit can reduce North American high yield bonds, which have a higher correlation to equities


January 2002 through December 2023 using monthly frequency of returns.* 66.6% JP Morgan Corporate Emerging Markets Bond Index and 33.3% The JP Morgan EMBI Global Diversified Index. Source: JP Morgan, Connor, Clark & Lunn Private Capital Ltd.

Emerging Market Credit, along with our other fixed-income asset classes including commercial mortgages, high-yield and core bonds, can be used to provide clients with a balanced portfolio of fixed-income, equity and alternative investments that may help them meet their long-term financial goals.

If you would like to learn more about our approach to Emerging Market Credit investing, please contact us.




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This material, including any attachments, is provided for informational purposes only. This material is intended for the use of the recipient only and no matter contained herein may be separately used, disseminated, distributed, reproduced or copied by any means, in whole or in part without express prior written consent of Connor, Clark & Lunn Private Capital Ltd. (“CC&L Private Capital”). Certain information contained herein is based on information obtained from third-party sources that CC&L Private Capital considers to be reliable. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of capital may occur. All opinions, estimates and projections contained in this material constitute CC&L Private Capital’s judgment as of the date of this material, and are subject to change without notice. This material has been prepared without regard to the particular individual financial circumstances and objectives of persons who receive it and nothing in this material constitutes legal, accounting, tax or individually tailored investment advice. Readers should consult with independent professionals regarding their individual circumstances, as applicable. This information is not an offer to sell or a solicitation of an offer to buy any securities and is not to be used as a sales communication.

Third-party disclaimer

This material may contain information obtained from third parties such as: Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML), S&P Global Ratings, MSCI, and Morningstar’s Wealth Forecasting Engine.

Source: Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML), used with permission. BofAML permits use of the BofAML indices related data on an "As Is" basis, makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the BofAML indices or any data included in, related to, or derived therefrom, assumes no liability in connection with the use of the foregoing, and does not sponsor, endorse, or recommend Connor, Clark & Lunn Private Capital Ltd. or any of its products.

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Catherine Dorazio
Managing Director
Business Development

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