Naeem Taidi: Following on from our first episode in this three-part series on emerging market credit, today we turn our focus to Asia, a region that continues to sit at the centre of global growth and credit opportunity. Welcome to the Muzinich podcast.

As highlighted in our recent article, 10 Reasons to Invest in Emerging Markets, Asia plays a critical role in shaping the outlook for EM credit, driven by strong economic fundamentals and evolving trade dynamics.

I am once again joined by Warren Hyland, Head of Emerging Markets at Muzinich, to explore how these themes are translating into opportunities across Asian credit markets. Warren, welcome back.

EM is projected to grow significantly faster than developed markets, led by Asia. How does that macro growth translate into credit fundamentals across the region?

Warren Hyland: Well, thanks for having me back, Naeem. Let’s break it down.

At the start of the year, Bloomberg consensus for 2026 was 4.3% in emerging markets and 1.9% in developed markets, so double the speed. Double the return? Maybe, maybe not.

Obviously, the Middle Eastern conflict will affect growth. Oil at extended prices above $90 will suppress growth, that’s clear for everyone. If we use the Federal Reserve’s oil shock model, they suggest that around half a percent of GDP will be taken out of the global economy over the next 24 months.

Right now, we have the IMF spring meeting, and they’ve updated their growth targets for the year. They’ve dropped global growth from 3.4% to 3.1%, so very similar: 50 basis points over two years from the Fed model. That’s 25 basis points a year, and the IMF has dropped it by 0.3%.

EM, with this shock in place, is now at 3.9%, and DM at 1.8%. So EM has been hit slightly harder, but still shows double the growth. So things still look great for EM versus developed markets.

For Asia, it’s a bit bittersweet, to be honest with you. The bitter is slightly less growth, maybe. However, the sweetness is that Asia is unusual in the fact that, for the last couple of years, it’s really struggled with deflation, while the rest of the world has struggled with inflation.

If we take China, we know they’ve got an oversupply in manufacturing and are struggling with a deflationary bubble from the property sector. CPI (Consumer Price Index) was negative until October ’25; now it’s just ticked up to around 1%. And PPI (Producer Price Index), that’s the price manufacturers pay, had a 41-month run of negative numbers. It’s the first time in over three years that it’s been positive, in March.

So this inflation uptick is probably good for China, it’s what they actually need.

A similar story in India. In October ’25 as well, CPI in India was zero, how crazy is that?, with food inflation at minus 1.7%. It has started to tick back up and is heading towards its medium band of 4%, currently at around 3.5%. Obviously, if oil prices stay elevated, it will have a knock-on effect on food prices. But as it stands, this inflation push is not a bad thing for Asia.

What did the IMF think of China and India? Well, they adjusted China’s growth slightly down from 4.5% to 4.4%. In India’s case, they kept it unchanged at 6.5%. So, no effect for India.

If we think about growth this year, it’s all about politics, unfortunately. The first layer is that we’re seeing a positive effect from the uncertainty of tariffs disappearing, and that really helps Southeast Asia. Around 75% of their exports are non-tech. That stopped because of tariffs, inventories fell, and now everyone’s buying again. So they’re really going to get a boost from that.

Secondly, in Asia, we’ve got a new government in Japan, very growth-orientated, and that’s going to boost the whole region.

More broadly, we’ve recently had Hungarian elections, Magyar beat Orbán after 16 years in power. This is great news for Hungary and Eastern Europe. Over €5 billion of previously frozen European funds will come into Hungary. This will boost fiscal spending and have a positive reverberation across Eastern Europe.

And don’t forget Latin America. If there’s one area benefiting from the current environment, particularly the Middle Eastern conflict, it’s Latin America. The IMF actually boosted Brazilian growth by 0.3%.

So what does it all mean for credit markets?

From a macro point of view, economies have a kind of “stall speed”, somewhere between 0.5% and 1%. If you fall into that range, things start to go wrong. EM starts from a much higher base, so there’s a bigger safety net. You’re more relaxed about dealing with shocks, they can absorb them more cleanly.

From a bottom-up point of view: more growth means more revenue, more cash flow, more power, great for credit, great for high yield.

That combination, more growth and a bigger safety net, suggests that Asian high yield could be a place to park some money this year.

Naeem Taidi: Thanks, Warren.

With global supply chains evolving and AI investment reshaping trade flows, where do you see the biggest structural opportunities within Asian credit?

Warren Hyland: Okay, good question, Naeem. Let’s touch on supply chains, then AI, two very big subjects.

In 2025, China grew at 5%, against all expectations, I may add. A big chunk of that came from net exports, around 1.6%. Most people expected exports to be strong before “liberation tariff day” and then weaken, but they didn’t. They kept chugging along all year, which surprised a lot of commentators and economic forecasters.

When you dig into China’s exports, there’s been a drastic and rapid change in the mix. Now around 25% of exports are green-orientated, cars, solar, wind, batteries, all the things the world needs. Those exports will continue, and that’s important.

And by the way, Naeem, Q1 GDP for China has just come in at 5% again, so maybe the IMF will have to upgrade their forecast. The big sectors were exports and tech manufacturing, which ties neatly into the AI story.

You really have to think of AI from both the demand side and the supply side.

On the demand side, what does AI need? Asia is perfectly positioned, because it mines, processes, and manufactures everything AI requires: rare earths (100% processing), lithium (99%), semiconductors (75%), batteries (80%). Asia basically produces everything AI companies want to buy, which is great news.

The tricky part is the supply side. There’s a deluge of supply because capex is huge. To put it into perspective: in the US in 2025, AI capex was 1.9% of GDP. Compare that to the broadband rollout in 2000 at 1.2%, or the Apollo programme at 0.6%. Even combined, they’re still below current AI investment.

What does that mean? A massive amount of debt supply in the US market. That’s not necessarily the case in Asia, which may make it a more attractive place.

The second point is disruption. As we know, it’s concentrated in the service sector and software, not typical EM exposure. EM is more about commodities, basic industries, and manufacturing.

In fact, I’d suggest that if you’re looking for a hedge against AI disruption, EM could be the place to go, because it supplies what AI needs, but isn’t as exposed to the disruption itself.

Naeem Taidi: So Japan’s reflation and China’s evolving trade position are reshaping regional dynamics. How does investing in Asian credit provide exposure to these structural shifts?

Warren Hyland: Imagine this, Naeem: the second-largest economy in the world, China, and the fourth-largest, Japan, both moving into stronger growth. That has to benefit the region.

Combine that with strong growth, a hedge against AI, and a bit of inflation, which the region actually needs, and it starts to look like a very compelling place to invest for 2026.

In fact, in our strategies at Muzinich, we’ve increased exposure to China.

Here’s an interesting point: when you look at Asia, the largest credit market is Japan, followed by China, then Australia. However, the most commonly used index is the JACI, which excludes China and Australia.

Our strategies don’t have that restriction, so we’re able to take full advantage of the full opportunity set in Asia.

Naeem Taidi: Thanks, Warren, for those fascinating insights, as always.

I look forward to recording our final episode with you in the coming weeks. And to all of our listeners, until next time, goodbye.