Author: Ignacio Teson

For one of the world’s largest bond managers, the recent rally in emerging-market assets is not a fleeting phenomenon.

Against a backdrop of fiscal strain in advanced economies and greater discipline across developing countries, Pimco sees structural value in local-currency debt and emerging-market currencies.

At Pacific Investment Management Co. (Pimco), the strong performance of emerging markets over the past year is viewed not as a simple cyclical rebound, but as the beginning of a long-term investment trend. That was the assessment of Pramol Dhawan, the firm’s head of emerging-market portfolio management, in an interview in New York.

“This is a playbook that will last many years. We’re not interested in short-term trades,” Dhawan said, outlining the strategy guiding Pimco’s positioning in the space.

Which countries Pimco is betting on

In terms of allocation, Pimco favors local-currency debt over hard-currency emerging-market bonds, with an exposure ratio of roughly two to one across its portfolios. Key positions include Peru, South Africa, Brazil, and Turkey, as well as select frontier markets such as Egypt and Nigeria.

One fund managed by Dhawan, with a strong tilt toward local-currency sovereign bonds in developing countries, delivered a 22% return over the past year, outperforming nearly 90% of its peers. That performance helped lift assets under management to about $6.4 billion, the highest level since 2013, according to data compiled by Bloomberg.

The resurgence of emerging markets was particularly evident in 2025, especially in local markets. An emerging-market equity index climbed more than 30%—almost double the gain of the S&P 500—while a Bloomberg index tracking local-currency bonds returned 17%, supported by a weaker U.S. dollar and renewed capital inflows.

Dhawan acknowledged that emerging markets have a history of frustrating investors, with abrupt reversals often triggered by political shocks, as seen recently in countries such as Argentina or Turkey. Still, he stressed that the current environment differs in key ways from past cycles.

What’s driving the emerging-market rebound

According to Dhawan, fiscal concerns are intensifying in advanced economies, while several emerging countries are showing greater macroeconomic discipline, with more credible central banks and a more orthodox approach to controlling inflation. Even factors traditionally associated with emerging-market risk—such as the politicization of monetary policy—have begun to surface in the United States.

This shift in perception contributed to the U.S. dollar’s worst annual performance since 2017, a move that amplified returns on emerging-market assets. Even so, Dhawan emphasized that Pimco is not broadly betting against the dollar, but rather focusing on credits with strong fundamentals, solid fiscal positions, and prudent monetary policy frameworks.

“Some of the strongest balance sheets today are in select, high-quality emerging markets,” he said, adding that he would not rule out a scenario in which yields in certain emerging economies trade below those of developed markets.