JPMorgan’s Michele Predicts Continued EM Growth Amid Dollar Rebound Risks

JPMorgan Asset Management’s Bob Michele believes that maintaining a focus on emerging markets will continue to be a promising strategy as we approach 2026. This perspective comes amid expectations that the selling pressure on the US dollar will subside. Michele, who leads the global fixed income sector at JPMorgan, foresees attractive opportunities in local-currency bonds from emerging economies, citing their “very high” real yields as a key factor attracting investors who may not yet have sufficient allocations in this asset class.

A Bloomberg index tracking local emerging market government debt has reported returns exceeding 15% this year, positioning it among the top-performing sectors in the global bond market. Factors driving these returns include a weakening dollar, interest rate reductions from the Federal Reserve, and the market uncertainties stemming from trade policies. As a result, many investors are turning their attention back to emerging market assets. “I can’t promise we’ll replicate this year’s returns,” Michele remarked in an interview. “However, the potential in EM local debt remains robust.”

Over $60 billion has flowed into emerging market debt funds in 2025, a significant departure from past trends where investors withdrew from this segment. Michele favors local currency bonds over hard currency ones and points to Brazil, South Africa, Mexico, Hungary, Romania, and Indonesia as promising investments. “These are the kinds of assets we are focusing on,” he noted.
Although Michele remains optimistic about emerging market debt, he doesn’t anticipate a major boost due to a decline in the dollar like seen in previous years. He warns that the dollar could actually hit a new cycle high. He considers this scenario one of five realistic surprises that he believes could have at least a one-in-three chance of occurring within the next twelve months.
“It’s essential to acknowledge that the momentum has shifted from de-dollarization back to the perspective that the dollar remains a strong option,” Michele stated. He added that while the Bloomberg Dollar Spot Index is down around 8% this year, most of that decline took place in the first half, marking its steepest drop since 1973 shortly after President Nixon ended the gold standard.

As we move towards 2026, various banks, including Deutsche Bank and Goldman Sachs, predict continued losses for the dollar, based on the belief that global economic growth will outpace that of the US. In contrast, institutions like Citigroup highlight a potential for dollar gains driven by optimism around the artificial intelligence sector.

Michele also indicates that markets may be surprised by a rally in Treasuries that could push ten-year yields down to 3% or lower, which would narrow the yield gap between long- and short-term rates.

For this scenario to unfold, he suggests that the Federal Reserve would need to implement “two or three rate cuts” and that the government should reduce the supply of long-term bonds in an effort to lower yields.

“There is a feasible path to achieve a flat yield curve at 3% or lower,” he asserted.

Potential surprises on Michele’s list also include gold prices soaring to $5,000 per ounce, junk-bond spreads hitting record lows, and a dramatic rise in the proportion of hard-currency emerging market debt yielding below US Treasuries.

“Currently, only hard-currency debt from the UAE and China is exceeding US Treasuries,” Michele explained, highlighting an interest in a broader spectrum of Middle Eastern nations such as Kuwait and Qatar.