- Fixed Income Portfolio Manager
Italy, Institutional
ChangeIn this edition of “Rapid fire questions,” fixed income portfolio manager Schuyler Reece shares his read on the evolving macro backdrop amid the Middle East conflict, why he remains constructive on emerging markets debt (EMD), and where he sees the most compelling opportunities and risks across hard currency, local debt and EM currencies.
Q: How do you interpret the current macro environment in light of recent market developments?
Coming into 2026, we had high conviction in the macro backdrop, with strong expectations for growth, a belief in broadly accommodative central banking, and a view of low volatility persisting throughout the year. The events of the past eight weeks have challenged these assumptions. We've lowered our expectations for growth in light of a significant energy price shock. We've adjusted our expectations for rate cuts, but, really importantly, we see very stable and supportive emerging market fundamentals, which define our outlook in the year ahead.
Q: With that in mind, what is your outlook on EMD?
Over the past five years, we've seen broad consolidation across emerging markets: Credible central banking, which we believe puts emerging markets in a favorable position to absorb shock. Emerging markets offer incredible opportunities today. This is a diverse asset class with multiple levers for us to pull during a period of market volatility.
We're most favorable on:
- hard currency sub-investment grade sovereign debt;
- emerging market currencies
with a lesser preference for investment grade sovereigns and corporates.
Our optimism about sub-investment grade sovereigns is driven by fundamental improvement, consolidation, and broad multilateral support from lenders like the IMF, and deep market access for countries who are most reliant on debt capital markets for funding.
Local markets’ optimism is driven by a view that we've entered a period of structural dollar weakness, which is very supportive both for local currency returns and also accrues fundamental benefits to the countries that we cover.
Q: Do you see AI influencing EMD fundamentals or technicals going forward?
AI-driven issuance is dominating developed market credit, and the large accumulation of debt across both investment grade and high yield in the United States is drawing significant investor concerns. Emerging markets are behaving very differently. We don't have the same capital needs. In many cases, we're seeing consolidation. The divergence in fundamentals across emerging and developed market credit, I think, is one of the most appealing factors behind investor interest in our asset class today; and it's one that, I think, will define a more benign default outlook over the medium term.
Q: What are your 1-2 highest conviction ideas right now?
We’re particularly excited about opportunities in Latin America. This is grounded in the increasing importance of geopolitics, and our analysis alongside traditional fundamental variables. Countries like Venezuela, Brazil, and Colombia are attractive across both hard currency and local markets today, as we believe the United States is increasingly incentivized to deliver economic support to countries across Central and South America.
We also have increasing conviction that we’ve entered a period of structural dollar weakness. This is driven by policy unpredictability in the United States, alongside worrisome debt dynamics. Across the landscape of emerging market currencies, presently, our highest conviction is in parts of Latin America and frontier markets, but also, very importantly, in places like China, where we believe that there’s significant scope for Chinese currency.
Q: What are the key risks to watch over the next 6-12 months?
Front of mind today is the duration and intensity of the ongoing conflict in the Middle East. High levels of starting inventories across all energy products offer a finite buffer against impaired energy flows from the Strait of Hormuz. To the extent that the conflict extends for another month or two, we would have greater fears of a worse growth-and-inflation tradeoff in the months ahead.
Relatedly, global central banking has become much more complicated, as inflationary impulses have increased—and are at risk of increasing further—in light of higher energy prices globally. We’re monitoring additional pressures on the Federal Reserve, as President Trump seeks to install Kevin Warsh as the new head of the FOMC.
Q: How do you leverage Wellington’s research ecosystem to inform your investment decisions?
Amidst the ongoing conflict in Iran, global monetary policymaking has become more complicated as central bankers face a difficult decision regarding the growth and inflationary tradeoffs. At the Federal Reserve, issues are even more profound, as there are political pressures on the Fed to lower interest rates, which can further erode global perceptions of policy credibility in the United States.
Wellington's Emerging Markets Debt team is one of its most global. We have investors in Boston, London, Hong Kong and Singapore. Our regional alignment allows us to connect with issuers, both sovereign and corporate, on a daily basis. Even more importantly, however, is our position within Wellington's broad investment ecosystem, which affords us the ability to benefit from insights across experts in macroeconomics, commodities, equities and other credit markets.
Over the past eight weeks, I've been so impressed with the partnership that I've seen across our sovereign and corporate researchers during this times of crisis, alongside our commodity experts and other macro strategists, as we try to understand how the world will cope with the ongoing energy price shock.
The views expressed are those of the speaker at the time of filming. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
