Emerging market bonds: emerging economies stand to gain from systemic rivalry

In their geopolitical struggle, the US and China are increasingly carving the world into spheres of influence. Both governments are securing access to critical raw materials, and the two great powers are competing for political alliances and economic partnerships. Emerging economies benefit from this shift, gaining importance as production locations, commodity suppliers or logistics hubs, and their local bond markets gain along with them.

For investors, this calls for a change of perspective. The most attractive investment opportunities do not necessarily lie in the two great powers themselves, but in the countries positioned between them and courted by both sides. Commodity-rich states look particularly interesting, as do countries establishing themselves as nearshoring locations or industrial partners.

China’s export machine and the new technology diplomacy
China’s strategy targets neighbouring regions in South-East and Central Asia, extending into the Middle East and Africa. Unlike the US, Beijing relies primarily on economic cooperation rather than military influence.

The latest example is the ‘Digital Silk Road’. Beijing is positioning its open AI models as a global public good for poorer countries and is calling for UN-led AI governance. The parallels with the Belt and Road Initiative are clear: China aims to build a complete Chinese AI ecosystem spanning models, chips, data centres and power supply.

As a result, China is increasingly growing through foreign trade rather than domestic consumption. Of the targeted GDP growth of 4.5 to 5.0 per cent in 2026, around a third is expected to come from exports, according to Barclays estimates. Semiconductor exports are developing particularly dynamically. Exports of high-value technology products are now growing considerably faster than the rest of foreign trade, a sign that China is climbing further up the industrial value chain. For investors, however, this technological progress is already largely priced in: Chinese technology stocks are ambitiously valued in many cases and often offer only limited upside in the short term.

When looking for investment opportunities, investors should therefore focus instead on China’s partner countries. These benefit in two ways: on the one hand through commodity exports to China, and on the other through investments under the Digital Silk Road, which strengthen the local infrastructure and technology sector. Data centres, networks and power supply are built on the ground.

Kazakhstan as a beneficiary of shifting supply chains
A prime example is Kazakhstan. The Central Asian state has recorded annual GDP growth of more than 5 per cent since 2023, and investors can find opportunities in the banking, energy and infrastructure segments. Alongside oil production at the Kashagan field, the country has evolved from a sales market into a manufacturing base for Chinese car brands such as Chery, BYD and Great Wall. This pattern resembles the US nearshoring model in Mexico. More significant strategically, however, is uranium: Kazakhstan supplies around 38 to 40 per cent of global mine production, of which China imports roughly 40 per cent, increasingly crowding out Western buyers.

China is also building Kazakhstan’s second and third nuclear power plants, trading resource access for reactor technology. This is likely to tie Kazakhstan’s nuclear value chain to China over the long term. Added to this is Kazakhstan’s role as a transit country, for instance for the gas pipeline from Turkmenistan to China and for rail traffic to Europe and the Middle East.

The ‘Donroe Doctrine’ and the US offensive in Latin America
Closer to home, the US is combining economic incentives with military pressure, as the arrest of former Venezuelan president Nicolás Maduro strikingly demonstrated. In December 2025, the US published a National Security Strategy for the Western Hemisphere. Alongside security matters, it sets out clear objectives: securing access to critical supply chains, infrastructure and raw materials. It also aims to push back Chinese influence. Echoing the ‘Monroe Doctrine’ and the US president’s first name, the strategy has been dubbed the ‘Donroe Doctrine’. The rightward political shift of recent years in Colombia, Peru, Argentina and Chile makes this endeavour easier.

As one example, Argentina received a currency swap line of 20 billion US dollars from the US ahead of last year’s midterm elections. At the same time, a new investment and trade agreement with the US is easing the approval of investments. One beneficiary is likely to be the oil and gas sector, above all ‘Vaca Muerta’, one of the largest unconventional oil and gas deposits in the world. Production is expected to double by 2035, and US companies such as Chevron are already involved. This also benefits the commodity-rich provinces. As owners of the natural resources, they levy royalties, so their revenues rise as production increases. Accordingly, the US dollar bonds issued by these provinces represent attractive investment opportunities.

Mexico benefits as an exporter of AI-related products, whose net export share rose from around 22 per cent in 2021 to almost 32 per cent in 2025. This is simultaneously increasing demand for industrial parks and logistics centres. Over the longer term, property companies should benefit from higher occupancy and rising rents, and as bond issuers they offer attractive investment opportunities. Chile and Peru, the world’s largest copper producers, likewise benefit from investment from both the US and China. Over the past decade, China has invested almost three times as much in Latin America as the US. This is likely one reason why the US is now stepping up its efforts in the region.

The Middle East, too, is expanding strategic infrastructure
In the Middle East, the current geopolitical situation is accelerating the build-out of strategic infrastructure. The Iran war has once again underlined the importance of resilient energy and trade routes, and it is increasing the pressure on the Gulf states to reduce their dependence on individual transport corridors. Estimates suggest that by the end of 2028 around 65 per cent of GCC oil exports could flow via alternative routes, leaving them no longer dependent on the Strait of Hormuz.

Saudi Arabia and the United Arab Emirates in particular are driving investment forward. One example is DP World’s expansion of terminal capacity at Fujairah on the Gulf of Oman, which strengthens the role of the Emirates’ east coast as an alternative trade hub. Over the medium term, the region will remain an important energy, logistics and technology node between Asia, Europe and Africa. For companies in infrastructure, energy and logistics, this creates long-term growth opportunities, and for bond investors it opens up attractive prospects in the region’s corporate bond market.

Attractive conditions for EM corporate bonds
For emerging market bond investors, then, the focus shifts away from the geopolitical rivals themselves towards the countries that are gaining strategic importance between them. What matters is not which great power wins the systemic rivalry, but which emerging economies can translate that rivalry into sustainable growth, sound public finances and rising corporate earnings. It is precisely there that the most attractive opportunities in the bond markets arise.

These structural trends are likely to persist for several more years, which argues in favour of long-term investment in emerging market bonds. On the fundamentals, we see historically strong balance sheets among the dollar-issuing emerging market corporate bonds. Added to this is greater financing flexibility through local markets, particularly in Asia.