Corporate bond routs from Sao Paulo to Istanbul are signaling to investors that the standout run in emerging markets may be starting to show some cracks.
In Brazil, trouble at chemical giant Braskem SA has money managers bracing for a potential debt restructuring and waste-management firm Ambipar Participacoes e Empreendimentos SA is on the verge of filing for bankruptcy. In Turkey, a government probe into industrial conglomerate Ciner Group sent bonds of subsidiary WE Soda Ltd. plunging.
The blowups risk derailing what’s been almost two years of outperformance for company debt from the developing world against their global peers. As cases pile up, the rally has started petering out over the last two weeks, a Bloomberg index shows.
“These are surprising events that are deeply problematic,” said Akbar Causer, head of emerging-market corporate debt at Morgan Stanley’s asset-management arm. “If this continues or things get a little bit worse, I’m scared it might shake some of the confidence. And then you might see some contagion.”
Until now, corporate debt from the developing world has held up even as President Donald Trump’s tariff regime stokes volatility in global markets. But appetite for the notes is starting to sour, with emerging-market investors predicting that the allure will fade heading into 2026, according to a Citigroup Inc. survey of investors overseeing about $250 billion.
As volatility picks up, Barings and Morgan Stanley Investment Management are sticking with bonds from safer, higher-quality companies. At Union Investment Privatfonds GmbH, portfolio manager Sergey Dergachev took profits in credits that “had a tremendous run” recently.
The selloffs have already started to spillover to more fragile spots: bonds of Raízen SA’s, a highly leveraged Brazilian company, slumped 20 cents in two days. The nation’s corporate bonds lagged peers over the past two weeks, handing investors an average loss of 5.3%, while a benchmark index fell 0.6%.
Notes from Turkey and Argentina — where currency reforms implemented under President Javier Milei spurred the worst streak of corporate defaults since the pandemic — are also among the biggest laggards, losing 1.5% and 1.1%, respectively, in that period.
Distress Signs
Companies in Latin America’s largest economy have been flashing distress signs in recent weeks, catching traders off guard and drawing comparisons to early 2023, when the collapse of the century-old retailer Americanas SA froze debt markets. A tightening of financial conditions would be particularly harmful to lower rated corporates, which have to refinance debt with borrowing costs sitting at a two decade high.
High borrowing costs also come into play in Turkey. On top of a fraud probe into Can Holding that also involves Ciner Group, Turkish corporates are facing 40.5% interest rates and sticky inflation. Home-appliance maker Vestel Elektronik is in talks with lenders to refinance some of its loans as it grapples with high leverage. Fitch Ratings recently warned of weaker profitability and deteriorating asset quality at Turkey’s banks, further souring sentiment toward the country’s corporate bonds.
Can Holding acquired C Gorsel Yayinlar AS from Ciner Group, which operates Bloomberg HT TV in Turkey under a licensing agreement with Bloomberg LP, the parent of Bloomberg News.
“Rising credit risk, foreign-exchange volatility and broader macro pressures have prompted investors to reduce exposure,” investment firm Gramercy Funds Management said about corporate EM debt in a research note earlier this month.
Despite the recent woes, the cycle is still positive for companies, said Jeff Grills, head of US cross-asset and emerging-markets debt at Aegon Asset Management. He’s maintaining his exposure to the segment.
Emerging market assets have had a stellar run in 2025, with local notes returning 14.4%, the best showing in 15 years, according to a Bloomberg gauge. An index of sovereign dollar debt jumped 10% while 17 out of 23 currencies emerging-market currencies tracked by Bloomberg have strengthened against the greenback.
The advance comes in part as traders look to diversify holdings away from the US, amid concerns over Trump’s policies and their impact on the economy and interest rates. Investors have poured more than $52 billion into emerging-market debt funds this year through Oct. 8, according to EPFR data compiled by Bank of America Corp.
But the fact that EM corporates have held up well and spreads are tight might lead traders to take profits a bit earlier this year, says Omotunde Lawal, head of emerging-market corporate debt at Barings.
The average yield on EM corporate dollar-denominated debt climbed for s sixth straight day to 6.15% on Friday, the highest since August, according to a Bloomberg index.
“Everyone has had good performance this year, and nobody knows when the music will stop playing, so there’s no need to be a hero into year-end,” said Eduardo Ordonez, a debt portfolio manager at BI Asset Management. “It makes more sense to stay cautious — or at least more selective.”
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