Lauréline Renaud-Chatelain, Fixed income strategist Pictet Wealth Management.

• Like their developed-market counterparts, emerging-markets (EM) bonds generally posted negative total returns in 2022 due to the rise in yields, which hit EM corporate bonds in US dollars especially hard. Between missed interest payments from Russian companies and the defaults of Chinese real-estate developers, the default rate was elevated in 2022 (averaging 12.7%) for EM high-yield (HY) bonds, with a peak at 40.4% for Asian HY in October.
• We still like clipping the high carries offered by EM investment-grade (IG) corporate bonds in US dollars, particularly Asian ones, which could benefit from China’s reopening. We expect Asian IG corporate bonds to post a positive single-digit total return this year, helped by strong carry. We also see Asian credits being less exposed to contamination than other EM credits if credit spreads widen in developed markets.
• Despite EM currencies’ recent rally against the US dollar, we believe it is still too early to call an end to US dollar strength. As such, we remain neutral and selective when it comes to local-currency EM sovereign bonds, but we reckon that many EM central banks could pause their hiking cycle soon.
• We expect EM local-currency sovereign bond yields to end the year slightly lower (from 6.6% to 6.5% according to the JP Morgan GBI-EM Global Diversified index on 11 January), not excluding stronger rallies in the first half of 2023. In line with our overall position on EM local-currency bonds, we maintain a neutral stance on Chinese sovereign bonds in renminbi as we monitor signs that the Chinese economy is indeed recovering.