Emerging markets could enter a “virtuous feedback loop” as economic conditions increasingly converge with developed economies, even as escalating conflict in the Middle East unsettles global investors, according to DoubleLine Capital.
In a recent note, Bill Campbell, who oversees the global sovereign debt team at the money manager founded by Jeffrey Gundlach, said structural trends such as a weakening US dollar and continued interest rate cuts by central banks could create significant opportunities across emerging market (EM) local fixed income.
Campbell said EM assets offer several sources of value at a time when many developed market (DM) financial assets appear stretched. The dynamic could provide diversification for investors seeking alternatives to richly valued markets in advanced economies.
Recent geopolitical tensions have nonetheless tested the resilience of developing markets. The US-Israel attacks on Iran over the weekend triggered a spike in oil prices and the US dollar, sparking a bout of risk aversion that sent currencies from South Korea to Chile sharply lower and led to one of the worst days for emerging market stocks and foreign exchange in years.
Campbell said such developments are likely to influence short-term market movements but are unlikely to derail the longer-term structural outlook for emerging economies. DoubleLine’s portfolios currently have limited direct exposure to the Middle East and have been positioned to be slightly less sensitive to interest rate changes than benchmark indices, he added.
The view contrasts with concerns around developed economies, where Campbell previously warned of a “brewing collision” driven by rising fiscal costs, slowing growth and increasing social pressures.
By comparison, several emerging markets appear better positioned on inflation and fiscal policy and could deliver stronger growth into 2026. Many governments across the developing world have diversified their economies, broadened their domestic investor bases and strengthened policy frameworks over recent decades.
Commodity-exporting countries including Chile, Peru and South Africa could also benefit from stronger global demand linked to increased infrastructure investment and defence spending in advanced economies.
Campbell also highlighted attractive nominal carry and real yields in markets such as Brazil and South Africa, where policymakers have worked to anchor inflation expectations and maintain policy credibility.
