tag

Global bond investors are beginning to view select emerging markets as safer than many far richer nations, a momentous shift that’s setting the stage for the next phase of outperformance in the asset class.The trend is most evident in the sovereign and corporate securities from AA-rated countries like the United Arab Emirates, Qatar, Taiwan, South Korea and Czech Republic. They have delivered stronger total returns this year than equally rated developed-world credits, in dollars as well as in local currencies. And for some of these nations, dollar borrowing costs are slipping toward those of the US, long considered the safest market of all.What’s more, there are signs of a broader risk convergence, one that’s encompassing even economies with lower credit scores.The outperformance stems to a large extent from the progress that swathes of the developing world have made in cutting debt, taming inflation and improving current-account balances. But it’s also down to unprecedented fiscal backsliding in the Group of Seven industrialised nations, where debt-to-output ratios are set to rise for years more, eroding their safe haven status.“If I want fiscal conservatism and policy orthodoxy, I go to the emerging-market world currently, not developed markets,” said James Athey, a portfolio manager at Marlborough Investment Management.He’s upped emerging-debt allocations, buying Mexican peso debt, in addition to Chilean local bonds and South African dollar-denominated securities.In terms of annual bond gains, 2025 is set to be the strongest year in emerging markets since before the pandemic.In the sovereign dollar-debt market, investors now demand the smallest premium in seven years over Treasuries. For AA-rated issuers, that spread has shrunk to a record 31 basis points. And since late 2024, average local-currency debt yields have been below Treasury rates, with the discount widening to a record this August. China, Thailand, Malaysia and Lithuania are among countries that borrow at lower rates at home than the US can.To be clear, the emerging-market universe contains many fragile credits, mostly in Africa and Latin America, where debt distress and political instability are constant risks. Only a handful of sovereigns carry AA ratings — too few for investors to deploy meaningful capital. Investors also tend to treat developing countries as a group, selling indiscriminately when sentiment sours, and dumping strong credits with the weak.And much of this year’s outperformance is down to dollar weakness and lower US interest rates. That’s re-ignited the carry trade, luring capital to high-yielding markets like Lebanon and Argentina. And finally, factors such as longer bond duration and lower new debt supply have also helped.For all that, there’s a palpable shift underway: Instead of merely seeking carry, many investors say they are committing to emerging markets because key macro fundamentals are flipping in their favour.For instance, inflation has fallen below advanced-economy levels — a rare reversal seen only once in the past 35 years — even as central banks keep interest rates an average 2.1 percentage points above developed-market levels.The advantage extends to external and fiscal fronts too. While emerging economies, on average, run current-account surpluses, richer nations sit in deficit. Budget gaps are similar across both groups, but growth in developing nations is far stronger, with output expected to expand about 2.5 percentage points faster this year.“It’s ironic that EMs, once seen as serial defaulters, are now the ones with primary surpluses and inflation under control, while developed markets are running persistent fiscal deficits,” said Marco Ruijer, a fund manager at William Blair.Nowhere is the change as stark as in the US, where President Donald Trump’s trade and taxation policies are forecast to significantly expand US deficits. Government debt now tops 100% of annual output, the US budget deficit equates to almost 6% of GDP, and annual debt-servicing costs surpassed $1tn for the first time ever.“If someone didn’t tell you the country and they showed you the US metrics, you wouldn’t want to touch that with a 10-foot pole, it’s so horrible,” said Erik Weisman, a fund manager at $660bn MFS Investment Management. “You could say something similar about the UK or France.”Weisman runs a developed-market portfolio but is using his flexible mandate to buy high-grade emerging debt at the expense of G-10 peers.Recent months have brought several examples of risk convergence with the US. In October, investors accepted a yield premium of 17 basis points over Treasuries for South Korea’s five-year dollar bonds, a record low.And no wonder: The country’s debt-to-GDP ratio is projected at 55% this year — half the G7 average — and it’s running a 6% current-account surplus. LINKSimilarly, Abu Dhabi sold 10-year bonds at 18 basis points over Treasuries — the tightest spread ever for that maturity in emerging markets. And China priced its three-year dollar sale bang in line with Treasuries, erasing the premium investors had demanded last year.That some emerging bonds now trade flat or inside similar-duration Treasuries is a sign there’s real demand for diversification, according to Nick Eisinger, head of EM sovereign strategy at JPMorgan Asset Management.“High-quality EM countries have been structurally improving for years, and the market is finally waking up to it,” Eisinger said. 

Indonesia’s sovereign wealth fund Danantara is reducing its financial support for flag carrier PT Garuda Indonesia, putting in doubt the distressed airline’s ability to refresh its fleet.Garuda will now receive 23.7tn rupiah ($1.4bn) from PT Danantara Asset Management, an arm of the wealth fund, through a private placement, which comprises a cash injection and a loan conversion, according to an exchange filing. The airline was supposed to obtain $1.8bn under a plan drawn up last month.In addition to covering finance expenses and providing working capital, Danantara Asset would have helped with fleet expansion. However, Danantara Asset notified Garuda that “there is also an adjustment to the planned use of funds, which no longer includes fleet expansion,” the airline said in a separate statement.The carrier has struggled financially since the Covid-19 pandemic and has grounded an increasing number of planes because of difficulties making maintenance payments. The number of idled jets operated by the company and subsidiary low-cost carrier PT Citilink Indonesia rose to 51 as of June, nearly 40% of the group’s total fleet, and up from 33 a year ago.Leasing new planes comes with high price tags amid a dearth of available aircraft and a global surge in travel. The carrier earlier this year paid twice as much to lease a Boeing Co 737 Max jet than it does for older 737 jets.Garuda should focus on getting some of its grounded planes flying again, said Gerry Soejatman, a Jakarta-based independent aviation analyst.“Ordering new planes for early delivery is going to be very expensive, and probably less prudent financially,” he said. “It is better to see the grounded jets being put back into service or returned to lessors before Garuda place big aircraft orders.”

The Qatar Financial Centre (QFC) has launched a pioneering proof of concept (POC), under its Digital Asset Lab, marking a significant step forward in the application of blockchain technology to Islamic finance.This development was enabled through the collaboration of a consortium of partners — AlRayan Bank, Blade Labs, and Hashgraph — each contributing unique expertise to a shared vision of financial innovation.The POC will demonstrate a blockchain-based digital receipt system (DRS) that can enhance transparency, efficiency, and regulatory compliance in Shariah-compliant asset-backed finance.The system will operate on HashSphere, a private permissioned distributed ledger technology (DLT) network built with Hedera technology, deployed on Google Cloud infrastructure provisioned through QFC’s lab.This initiative exemplifies a collaborative model where regulatory foresight, technical innovation, and domain expertise converge.The QFC serves as the orchestrator of the initiative, providing infrastructure support and subject matter expertise to guide the use case development.Hashgraph delivers and operates the underlying blockchain infrastructure, ensuring secure and scalable network performance, and Blade Labs leads the development of the DRS, including smart contracts and user interfaces tailored to Islamic finance use cases.AlRayan Bank plays a critical role in validating the system’s functionality, offering domain-specific insights and exploring commercialisation pathways, while Google Cloud enterprise-grade infrastructure is utilised for the initiative."Through our Digital Assets Lab, we’re proud to facilitate this pilot as a step forward in exploring how blockchain can bring greater efficiency and scalability to Shariah-compliant financial products. This initiative reflects our continued support for tokenisation, financial innovation, and collaboration aligned with the Third Financial Sector Strategic Plan," said QFC Authority chief executive officer Yousuf Mohamed al-Jaida.Omar al-Emadi, acting Group chief executive officer of AlRayan Bank, said innnovation is a cornerstone of Islamic finance, and this initiative reflects its commitment to advancing Shariah-compliant financial solutions that meet the evolving needs of the market."Through our participation in this POC, we reaffirm our role in validating the system’s functionality and laying the groundwork for scalable, practical applications that can strengthen the future of Islamic finance while reinforcing Qatar’s position as a regional hub for financial innovation," he said.By participating in this POC, it is not only validating the system, but also helping pave the way for practical and scalable applications of blockchain technology in the Islamic finance sector, according to Houssam Itani, Group chief transformation officer, AlRayan Bank.Sami Mian, chief executive officer, Blade Labs, said the DRS POC will showcase that blockchain, smart contracts, and global identity standards can address the operational bottlenecks that currently prevent Islamic finance institutions from scaling certain Shariah-compliant asset-backed products."By providing a controlled environment to measure actual business outcomes, institutions can evaluate whether this technology approach solves problems worth solving before making larger commitments," he said.Eric Piscini, chief executive officer, Hashgraph, said it is built to deliver the trust, performance, and regulatory confidence that today’s financial systems demand."Backed by the scalability and security of Hedera’s enterprise-grade technology, this collaboration highlights how the right infrastructure can unlock new possibilities in both Islamic finance and broader financial innovation," according to him.

For centuries, gold has been the go-to haven asset in times of political and economic uncertainty. Its status as a reliably high-value commodity that can be transported easily and sold anywhere offers a sense of safety when everything else is in turmoil.Not everyone’s a fan. Famed investor Warren Buffett has called the precious metal a “sterile” asset, telling Berkshire Hathaway Inc shareholders in a 2011 letter that “if you own one ounce of gold for an eternity, you will still own one ounce at its end.” Nonetheless, investors have sought refuge in bullion amid President Donald Trump’s expanding trade war, record US debt levels sparking concerns about the country’s fiscal health, and growing encroachment on the independence of the Federal Reserve. Investors have piled into gold-backed exchange-traded funds this year, with total holdings at the start of September reaching their highest point since June 2023, according to data collected by Bloomberg.The rush to gold has prompted the precious metal to keep setting new price records in 2025, extending a ferocious run from last year. Bullion punched through $3,500 per troy ounce to reach a new all-time high in early September, fuelled by expectations the Fed will cut US interest rates.Why is gold considered a safe haven?For modern investors, it’s primarily because of gold’s stability and liquidity rather than any intrinsic utility.Gold has a track record of increasing in value in times of market stress. It’s also seen as a hedge against inflation, when the purchasing power of currencies is eroded. Inflation worries are front of mind for many right now as the duties Trump has imposed on imports into the US risk increasing prices across the global economy.US inflation, in particular, is in the spotlight as Trump piles pressure on the Fed to lower interest rates. Gold, which pays no interest, typically becomes more attractive in a lower-rate environment, as the opportunity cost of holding it versus interest-earning assets decreases.The safe-haven status of gold has also been elevated as Trump’s trade agenda shakes trust in other typical shelters from market gyrations — namely the US dollar and government bonds — and threatens to end the idea of American exceptionalism.Gold has historically been negatively correlated with the dollar. Because bullion is priced in dollars, when the greenback weakens, gold becomes cheaper for holders of other currencies. The dollar reached a three-year low against other major currencies in July and remained subdued by the end of August.Beyond market movements, owning gold is deeply rooted in Indian and Chinese cultures — two of the world’s largest markets for the metal — where jewellery, bars and other forms of bullion are passed down through generations as a symbol of prosperity and security. Indian households own about 25,000 metric tons of gold, more than five times what’s stored in the US depository at Fort Knox.Physical buyers are famously sensitive to prices, but when gold’s appeal to investors in financial markets starts to fade, buyers of jewellery and bars often step in to grab a bargain, putting a floor under prices in the process.What was driving the gold price up before Trump re-entered office?The metal’s blistering price rally since the start of 2024 was partly driven by huge purchases by central banks, particularly in emerging markets as they seek to reduce their dependency on the US dollar, the world’s primary reserve currency. Gold helps diversify a country’s foreign exchange reserves and guard against currency depreciation.Central banks have been net buyers of gold for the past 15 years, but the speed of their purchases doubled in the wake of Russia’s invasion of Ukraine. As the US and its allies froze Russian central bank funds held in their countries, it underscored how foreign currency assets are vulnerable to sanctions.In 2024, central banks bought more than 1,000 tons of bullion for the third year in a row, according to the World Gold Council, and they hold around a fifth of all the gold that’s ever been mined. That pace of buying has since slowed somewhat in the face of higher prices.What could halt gold’s rally?Following a nearly uninterrupted upward march in the gold price since early last year, there could eventually be some consolidation as investors banks their gains. A major de-escalation of Trump’s tariffs and a peace deal between Russia and Ukraine could also spur a price decline.But central banks have been the most important pillar of support for gold’s bullish momentum, meaning they have the power to do the most damage if they trim their reserves.There’s no indication any large holder is considering this. The central banks of developed economies have sold very little gold in recent decades compared to the 1990s, when persistent sales sent bullion prices down by more than a quarter over the decade. Amid concerns that those unco-ordinated sales were destabilising the market, the first Central Bank Gold Agreement was struck in 1999, under which signatories agreed to limit their collective sales of bullion.Does gold being a physical asset cause any issues for investors?Owning gold typically isn’t free. Because it’s a physical object, holders have to pay for storage, security and insurance.Investors buying gold bars and coins will usually pay a premium over the spot price. There can be geographic price differentials too and traders take advantage of these arbitrage opportunities.That’s what happened earlier this year when fears that Trump could introduce tariffs on bullion imports pushed gold futures on New York’s Comex significantly above spot prices in London. There was a worldwide dash among those in possession of the physical metal to shift it to the US to capture the large premium and potentially hundreds of millions of dollars in profit.That arbitrage trade came to an abrupt halt in April, when the Trump administration indicated that bullion would be exempt from duties. The market had a brief scare that this wouldn’t be the case, after US Customs and Border Protection said in August that certain gold bars are subject to Trump’s “reciprocal tariffs.” However, Trump himself then weighed in to say that gold wouldn’t face import taxes.Gold is usually relatively simple to shift, stashed away in the cargo holds of commercial aircraft, unbeknown to the holiday and business travellers in the cabin above. But it’s not as straightforward as loading up a jet from Heathrow Airport to JFK thanks to a quirk in the global gold market: different size requirements. In London, 400-ounce bars are the standard, while for Comex contracts, traders must deliver 100-ounce or 1-kilogram bars.That means bullion being sent to Comex warehouses has to first go to refiners in Switzerland to be melted down and recast to the correct dimensions, before journeying on to the US. This creates a bottleneck when there’s a particular rush to rejig the location of bullion stocks.