Hello all, and welcome. I'm Jason Pasquinelli, Managing Director, and Head of Client Solutions at RBC Global Asset Management. I would like to thank you for joining us today for “Beyond Borders: An Emerging Markets Growth Renaissance”, our eighth annual EM webinar. We hope you find today's discussion to be insightful as we evaluate perspectives on emerging markets in 2024 and their implications for investors.

For more emerging markets insights, please visit rbcgam.com or click on the links on your screen.

Before I introduce today's speakers, a bit of housekeeping.

If you have any questions or comments throughout the discussion today, please submit those using the functionality on your screen. We will do our best to weave them into our discussion. We do encourage questions, so thank you in advance. As a brief reminder, RBC GAM operates as a global firm of specialized investment teams with about $430 billion in assets under management as of December 31, 2023. In addition to broad-based capabilities in equities, liquidity management, and alternatives, our BlueBay Fixed Income platform seeks to embody the best aspects of alternative and traditional fixed income investing.

Regarding our emerging market capabilities, we've been managing money in the asset class since 2002, currently investing over $22 billion between our equity and fixed income desks.

To continue the discussion today, I'm pleased to be joined again by Laurence Bensafi, Deputy Head of Emerging Market Equity at RBC, and Polina Kurdyavko, Head of BlueBay Emerging Markets Debt. I appreciate both of you again spending time with us and look forward to hearing your insights from both an equity and debt perspective on the asset class.

Let's start with a question on EM growth. Despite the economic pressures felt around the world in 2023, emerging markets are poised to outpace their developed market counterparts this year, signaling a transformative shift. Emerging markets exhibit strengthened fundamentals characterized by improved credit metrics, lower defaults and deficits, and notable reforms.

Polina, let's start with you. From a fixed income perspective, what types of shifting fundamentals are you seeing on the debt side?

Thank you for the question, Jason. I think we're observing four quite interesting trends from the fundamental standpoint. Firstly, we're seeing sustained growth. The emerging market growth rate this year is likely to be comparable to last year and continues to exceed the growth rates in developed markets.

Secondly, and that's where for fixed income investors, we think the second element is quite interesting, is the driver of that growth is not coming from re-leveraging because if we look at the fiscal accounts, emerging market countries' fiscal deficits on average continue to improve, and that's also benefiting stronger commodity prices. We're also seeing current accounts continuing to improve, again benefiting from the sustained high commodity prices, and also a disciplined approach to policymaking. When we think about monetary policy, as we discussed in the previous sessions, central bankers in emerging markets have been orthodox and have started their hiking cycle many months, if not years, ahead of developed market policymakers. We're now starting to see the fruit of it coming through low inflation, and a very, very cautious stance still of the central bank governance when it comes to the pace of rate cuts, despite the positive inflation dynamic.

Now, these factors lead to an ultimately lower default rate. In fact, we would expect default rates to continue to normalize in emerging markets toward the historical average. In particular, on the sovereign side, we actually expect defaults to drop substantially from a year ago, where we could see well below historical average default rates. We do think that this combination of positive tailwinds from a fundamental perspective is particularly interesting when it is in the context of the highest valuations that we've observed over the last 13 years when it comes to yields. We're trading at the highest levels in yields for over a decade, and that's due to both spread widening and treasury repricing that we've seen over the last few years. In combination, we find this very attractive as an opportunity to invest.

Laurence, maybe your thoughts on the fundamentals from the equity side?

Yes, thank you so much, Jason. So, yes, look, EM equities have had a tough time for the past several years, more recently with China. Chinese equity also being a big headwind. So, I'm not going to go back to the reason for that, but the important point is, similarly to what Polina was saying, we believe that we are potentially an inflection point for EM equities as well.

There are different reasons for that. First, there's a very low positioning into the asset class, very low valuation, but more importantly, the fundamentals have really improved as well.

So, what have we seen? We've seen that we are in a new environment, we believe, where we are with higher inflation probably for longer, even though it's going down, but unlikely that it will go back to the very low level we've seen in the previous decade. So, in that environment, we're going to have probably higher interest rates for longer; at the same time, higher commodity prices, as Polina mentioned, probably a weaker dollar. That's a good environment for EM equities. That hasn't been the case for a very, very long time.

And indeed, as Polina mentioned already, EM countries know how to deal with this kind of environment. They're used to higher inflation. They reacted very quickly. I'll give you one example of a big country on EM equities, Brazil. They reacted very quickly, they increased interest rates, and they were ahead as well when it came to cutting. What is interesting is that their interest rates are still around more than 10%, but they didn't go through a recession at all. They actually had a good GDP growth of about 3% in 2023, probably the same level this year. The unemployment rate is one of the lowest it's been for many, many years. So, it's just an example of a country that’s actually doing well despite a difficult environment, and many other developed countries are not in the same situation.

So, really, fundamentals are dramatically improved for emerging markets. And when you look on the equity side, what is interesting is that despite seeing some of the best fundamentals ever, frankly, in our countries – apart from China, and we'll touch on that later – actually the valuation when it comes to the equities is the lowest it's ever been compared to developed markets. So, we feel like there's a big mismatch between those fundamentals and the valuation. And we think this is a gap that has to close somehow at some point. So, actually, when you look at EM equities as well, those strong fundamentals, they're somehow reflected in a way that if you look at the performance over the past three years, if you exclude China – again, problem country – EM has actually performed in line with DM. And actually, if you look just last year in 2023, EM ex-China was up about 20% with many countries between 20, 30, or even 40%. So, it's not already too bad. It's just when you add China, it doesn't look as good.

So, when we look at all of that, there are three types of countries we really like in EM, where we find the fundamentals are strong for different reasons. So, the first category of countries is countries where we've seen very strong reforms over the past few years. And in that category, we would put India, Indonesia, to a certain extent, Brazil, because we had the change of leadership. But those countries have had really deep reforms over the past, let's say, eight years. And they were difficult to implement, and during the reforms has been tricky, but now the reforms are really paying off for those countries. And they're really doing very nicely when it comes to economic growth.

The second category that is very interesting, the countries that are positively impacted by friendly shoring, or near-shoring, or China Plus One model, whatever you call it, is really the fact that a lot of manufacturing capacity is looking at expanding outside of China, I would say, or closer to the consumer. And that impacts also positively quite a lot of EM countries, including all of Southeast Asia, with Vietnam, Indonesia, and Thailand – there are many countries, that's actually a big, big region – and Mexico. Mexico is doing extremely well and has been doing extremely well for a couple of years. They are attracting record FDIs, investment into the country, and we're very positive about the country. And we feel this is something that's going to play out really for a long period of time.

And the third category of countries is Taiwan and Korea, the countries that are going to be positively impacted by AI and digitalization in general. Sometimes it’s easy to forget that EM is actually a big play on technology. Korea and Taiwan represent about 30% of our index. And it's actually in those countries, you have the entire production chain of AI. And you've got champions really in the region, companies that have invested for years and years, R&D, very high barriers to entry, strong returns. And in those countries, you can buy those companies for I would say a fraction of the American companies that everyone knows to play that theme.

So, when you add up everything together, there are a lot of good stories in emerging markets. The fundamentals are strong, the valuations are there. The positioning is very low. I would say China is the main issue, but we're very hopeful that going forward, I think investors will realize the attractiveness of the asset class.

Thanks, Laurence. You mentioned China about five times in your response, so it probably makes sense for us to pivot to China. You mentioned the China Plus One model, and we know that it's not benefiting them in itself. I'd love to hear your thoughts on China's underperformance in emerging market equity and maybe China going forward.

Yes, you're right. I'm maybe slightly obsessed with China. Look, it's really the main headwind, even though it's not as big as it used to be in our index. China used to be at the top about 42% of the index, so it was all about China, I would say. Now, China went down to almost 25%, so only a quarter of the index, but it's still very important. So, China right now, the Chinese equity market is the cheapest it's ever been and one of the cheapest in EM, for sure, in the world. And there are a lot of interesting stocks to buy that are quality, very cheap. So, you can look at it as a very good opportunity in the market. You can also look at it as a complete value trap where you never want to be invested again. And I think that's really interesting to consider those two aspects.

So, I think the way I would start is to say that China is really at a crossroads, we believe, at the moment. China obviously did extremely well over the past, I would say, 20 years; amazing growth, really lifted the country from a very poor country to a middle-income country, with about a GDP-per-capita of about 12,000 US dollars. And that's when usually you get into a difficult zone. Many countries, or maybe several countries, went into that zone and got stuck. So, you've got countries such as Brazil, Malaysia, quite a few countries. Only some countries managed to go from that zone to developed countries, maybe countries such as Singapore or Korea. So, they managed to develop further. In order to develop further, you really need to have the right institutions, the right leadership to develop further reforms. And I think there's a big question mark around China at the moment. Are those conditions there for China to develop?

Having said that, we don't think China is at the end of the road because there's really a huge potential for China to continue to grow if what I mentioned is met (those institutional reforms and the right leadership). China developed very strongly, obviously, on investment, infrastructure, real estate, cheap exports. All that is gone. As you mentioned, Jason, cheap exports are going somewhere else now. And infrastructure spending is more or less done. When you go there, you see it's very developed and the real estate sector is also not going anywhere for a while. But there's a huge potential in China to develop domestic consumption. China is one of the countries in the world with the lowest portion of domestic consumption as a percentage of the GDP.

Why is that? It's because there hasn't been a lot of focus. I mean, there are different reasons. People are saving a lot of money in China instead of spending it because the safety net is not the same. It's interesting to know that in China, the transfers from the government to the population is way lower than in the US, for instance, which you would think would be a little bit counterintuitive. And so what we need to see in China is a lot more spending into education, into healthcare, into unemployment benefits or retirement benefits, et cetera, for people to spend more. When that happens, when that is unlocked, there could be decades of really strong consumption growth in China.

So, yes, there's a lot of potential for there. But we were in China earlier this month, actually, and we talked to tens of people there, and I think it was really unanimous. The feedback is that there's really a huge lack of confidence in the leadership at the moment. And people were quite open to say, look, for many years, we saw the government was really pro-business and obviously pro-growth, and with this focus on common prosperity and sustainable growth, even though everyone agrees on that, you wonder if, on the short term, a lot of growth is going to be sacrificed.

So, let's see what happens. I think there's a lot going on right now in China. We've seen an announcement almost every day, but we need probably to see a lot more to give back confidence to the people in the country and then to investors.

And I'll stop there.

Polina, maybe your thoughts on China from a debt perspective. And in the US, we certainly have ongoing concerns about the China and Taiwan tensions that are there, so any comments that you can speak to on that tension would be certainly appreciated by our audience.

Sure. Well, firstly, I would say that unlike the equity indices, China is a much smaller part of fixed income indices. It accounts for less than 5% of our universe. And it's one of the 80-plus countries, which is easy to take an active risk position on and have zeroed. In fact, that's where we are at the moment.

Now, we're there not because we think the China-Taiwan escalation is the base case, but because we feel that we're not being paid for Chinese risk. Again, unlike in the equity market, in the credit market, valuations are tight. Spreads are quite tight for investment-grade-rated entities in China, and we feel that the combination of valuations and potential downside risks makes it an easy, active management decision to avoid China at this junction and have zero exposure.

Now, interestingly, when we think about the China-Taiwan risk, we feel that it's unlikely to materialize in the short-to-medium term, mostly because if you think about the Russia-Ukraine war, Russia is unique when it comes to its economic isolation, for lack of a better word, from the rest of the world. China still relies heavily on the external world and the external world equally relies on China. So, we don't think that the Russian-type scenario is likely to materialize in the China-Taiwan tensions. What we do expect is perhaps a risk of select sanctions on individual entities. It's interesting that from our context with the policy officials in China and also from our recent trip – in fact, we did that trip together on the credit side and debt side that Laurence mentioned earlier – we got the feedback that actually the two risks that some of the Chinese officials are most worried about are firstly the risk of individual sanctions on the names, which confirms for us the right position when it comes to zero exposure in China, especially in the quasi-sovereign names, and secondly, the Middle East escalation. And so I'm sure you will ask at some stage questions on that, and we can discuss that at length. But interestingly, some of the policymakers that we've met felt that they're not worried about the pace of organic growth recovery in China. And ultimately, we do think that we are very close to the bottom when it comes to everyone's expectations. And we are likely to see just a natural rebound when it comes to China's growth numbers.

Polina, you read my mind and we've got a couple of questions, really on the geopolitics theme, and certainly the Middle East is popping up, so maybe we'll continue with you to address any thoughts on the Middle East right now.

Sure. Well, I guess none of us have a crystal ball, and it's often difficult to judge the tail risks in geopolitical events and when they become the base case. Our assumptions on the geopolitics and the escalation in the Middle East are the following.

Firstly, we do think that our base case is it will remain the regional conflict. And I know it is a consensus view. And there have been times in the past when, like with Russia-Ukraine, we didn't have a consensus view. But in this case, we feel it's likely to remain regional, mostly because neither the US nor Iran nor other large DM and EM economies are interested in spending money at this point in time and therefore escalating it to a much broader, higher level. That's our base case.

Now, the good news when it comes to active risk management in EM is that Middle Eastern countries are mostly investment-grade and trade relatively tight, and perhaps it's somewhat wider for their rating, but still tight in the context of the broader yield offering. So, even though we don't have escalation as being the base case, we are underweight some of the big Middle Eastern countries like Saudi Arabia, Kuwait, and Qatar, just because we feel that overall, we're not paid enough for the risk that we're taking, given that tail event that I highlighted.

And again, if you want to take an active view on this, there are plenty of derivative instruments that don't cost much – the cost of CDS, for example, in Saudi, five years, 60 basis points – that you can use to take an active approach to protecting the risk in the portfolio.

The last point that I would make is that if the tail materializes and if we see escalation, if we think about the fundamental implications of that escalation, that actually means oil prices go much higher. And let's not forget that Middle East is the biggest oil exporter. So, if anything, if I were to think about the fundamental ramifications of the escalation, I think the region with the most vulnerability will be Europe. And we also have to revisit the rate-cutting cycles globally, if that's the event that we're facing, and unlikely to see rate curves going much steeper.

Thanks, Polina. Got a couple of other questions about other risks, and maybe I'll kick it over to you, Laurence. We're in a higher interest rate environment and recession risks certainly continue into 2024. How vulnerable are emerging market countries right now?

Yes, I mean, I think way less. That's a short answer. I think as we both mentioned with Polina, EM countries have seen that situation many times in the past. When you look at the level of inflation that we have now, there was a spike, but it was not that unusual. And as I mentioned, Brazil is a good example. Brazil has seen a similar level of inflation every few years. You have to remember that in emerging markets, inflation really comes from commodity prices and food prices. And as you know, they are very volatile, and that's really the main reason for that inflation coming and going.

We didn't have the same issue in EM after COVID. Inflation was not due to tight supply. That was never the issue. So, they're very much used to that kind of environment and actually now it's less important. I would say when inflation really became a problem in developed markets and we're talking to corporates and we'll be asking, “What about inflation for you?”, that would never be really something that came as an issue for those companies. Because I would say, look, yes, it's high right now. We know it's going to go down. We've been there many times.

So, it's really a very different environment. And I think that's the point we were trying to make with Polina is that, for EM, we are in a pretty normal environment, I would say. And the risk of recession is very low in our EM countries. If anything, I think the risk is more on the upside in many countries for the reasons I mentioned, either reforms or they benefit from new trends. So, really, for us, we're in a situation that is quite different. The fact that the deficits have been much lower as well, that's also a big plus. EM countries didn't spend nowhere near what has been spent in DM during COVID just because they didn't have the money to start with. So, it means the deficit remained much lower. And you don't have this overhang of a really huge level of debt. You have to remember, again, on fundamentals, that level of debt in EM, on average, is much lower than on developed markets. So, again, the impact of higher interest rates is not felt the same way.

EM countries went through so many crises, and they really learned the hard way that you need to improve your finances. And we really feel like that has been done over the past few years, but no credit or very little credit has been given to those countries. So, that's the way we really approach the situation.

Thanks, Laurence. We've got a couple of questions that have rolled in regarding the unusually high number of upcoming elections, which could result in potential policy reforms. Maybe we'll start with you, Laurence, in emerging markets. What are your expectations there?

Yes, so there are so many countries where we're going to have elections. I would say, weirdly, we're not that excited or worried because actually a lot of the elections, we feel, are going to be like a non-event in emerging markets. We can talk later, maybe Polina will tackle that, but the US election is maybe a different one.

But when it comes to within emerging markets, so the big one – there are several big ones – but the big one that's going to come is India, obviously. It's very important because the BJP Party that has been in power for eight years has been really instrumental in terms of the reforms we've seen in India. We were also there a couple of months ago, and the energy is a quite interesting contrast between China, obviously, and the confidence. The country is booming and everyone is excited because the cities are changing from one day to another. It's really where China was maybe 20 years ago.

So, what we were told, and we'll see, and there have been early elections that the BJP won quite easily, so people are really happy. People really believe that the country is going in the right direction. So, why would you change? Not everything is perfect, far from that, I'm not saying, but when you see the changes, the improvement, I think it's unlikely that we're going to see a change in leadership. So, obviously, it'd be very important to follow that election, but we feel like it's pretty much a given on India.

There are several more. South Africa. Mexico. I think Mexico is an interesting one as well because I mentioned it's also one of the countries we look at very closely, lots of potential. It will very likely, unless something happens, that again it will be continuity in the country. The Morena Party, which is running now, is really in the lead. Quite interesting to see that the two candidates are women, so it would be a female president in Mexico, so it's quite interesting. And then we expect, again, continuation of the same, which is not great, but the country is doing well, nevertheless.

Other elections. Indonesia, the same, should be continuity. South Africa is maybe a little bit more disputed, and to be frank, South Africa is such a mess at the moment that we'll see what happens, but I'm not sure that would change either way really what happens because people expect a lot more than elections for change in the country. A lot of reforms are needed, a lot of changes, and an election would be just the very beginning of something, I would say.

Maybe, Polina, I'll pass it over to you for your thoughts. We have a bunch of questions coming in, so thank you for continuing to submit them on your screen to the audience, but we will hold off on the US in particular, given that has been a number of questions that popped up, and we can address that as a separate entity. So, maybe, Polina, with you, emerging markets and the current elections that are going on this year?

Sure. Perhaps continuing on the theme that Laurence highlighted, if we look at countries like Mexico, I actually think from a debt perspective, there is an opportunity, potentially, to generate double-digit return, depending on the policy framework on the back of those elections. Because one of the elephants in the Mexican room is the focus on environmental risks.

When I think about South Africa, again, as Laurence has mentioned, this is, to some degree, a country where everything went wrong. If you think about a country like India, where everything went right over the last few years, that would be the inverse of the Indian story. They had load shedding. There were challenges on the growth side. They had questions about policy orthodoxy. There were a lot of corruption scandals. And on top of this, they're now coming into the elections and there's a debate whether this outcome would be a coalition government, and if it is, whether the coalition is formed with market-friendly parties or whether the coalition is formed with someone with a party like EFF, who would be very adversarial to the market perception, given their agenda.

Now, what is interesting to me is that South African risk is priced differently in different markets. If you think about the hard currency market (fixed income), we think that it's the middle of the range pricing, we don't see much extra spread paid for these risks. But if you look at the local market, the local spreads or the local yields are probably at close to an all-time high. In fact, it's the steepest curve in any of emerging market countries, and the back end of the curve is pricing already the tail event in our view, being the base case. So, what we find interesting in fixed income is actually you can play the same event from different angles. You can take a long view in the local risk, which is already pricing in a tail event, and then you can hedge yourself with a hard currency risk, for example, which is not pricing in that event. And again, if there is a political surprise in South Africa, you are likely to see a double-digit return from those local investments.

So, I think the common theme behind all of the elections in emerging markets this year, for us, is that, in general, the tail events are priced with relatively low probability. So, in every country, you actually have an asset which you can put as a hedge against the tail event, and that won't cost you a lot. Equally, in almost every country, you could have a risk asset that would deliver a double-digit return on the back of a positive outcome. And that's a perfect environment for an active manager.

So, Polina, I think tail events is the perfect segue into the US election in November, which arguably may have the biggest impact on markets. So, maybe we'll start with you to share your thoughts there, and then kick it over to Laurence for her comments too on the equity side.

Well, there is definitely plenty of debate going on about the impact of the US elections, in particular, obviously, if Trump becomes the president again.

I would simplify it into two categories. I think, firstly, is the impact on inflation. If you think about the rhetorics from Trump – although I'm sure we're likely to see more rhetorics as we go through the year – the rhetorics is tax cuts, tariff hikes, and border control. All those points are inflationary. So, if he were to start delivering on some of that rhetoric, I would expect inflation to be more sticky. I would expect, therefore, the Fed to be more hawkish or more cautious when it comes to rate hikes, and that will have implications on all markets, fixed income, and equity markets. And therefore, the higher rates for longer perhaps could be the theme for 2025, depending on the outcome of the elections. So, that is one event for us to monitor.

The second implication would be geopolitics. Now, I know there are a lot of fears around perhaps NATO as an organization, and whether Trump would be still willing to fund and contribute to NATO, and what that would mean for the defense budgets of European countries, for example, if he doesn't. But I think that the simple view on geopolitics is that Trump’s focus, historically, has always been on not spending money externally, and focusing more on domestic areas which require funding. And I think we could be surprised by the fact that, for example, the Russian-Ukraine peace deal could be struck sooner than the market currently expects, and there could be perhaps more pressure on the Middle East to bring back the conflict to a very small regional conflict and not escalate it.

So, I think the short answer is really no one quite knows yet because we haven't even had to hear his rhetorics yet on the geopolitics. But I do think that we shouldn't write it off as a complete risk-off event straight away, because ultimately, as we've witnessed in 2016, Trump coming to markets then was not necessarily an event – the risk-off event that was long-lived. It was a very short risk-off event, which ended up being one of the best buying opportunities.

Maybe Laurence, on your end, any thoughts?

Yes, look, I think that's going to be – I think for us on the equity side, I think the US election would be probably more important than most of the other elections in countries, as I mentioned. If you remember, when President Biden was elected, it was a big relief, actually, in EM, especially China, because obviously, Trump was not very good with China, when he put on all the tariffs (import tariffs). So, there was a big, big relief when Biden was elected, which obviously proved completely wrong, because Biden has even been more, I would say, tough on China, and on more topics than not only on the economic side.

But now, I would say in the US, everyone, both sides, all the sides, I would say tough on China, and it's becoming, I guess, also a very political topic. So, I'm not sure actually, if people will be relieved. I think we'll have to hear about the rhetoric around China. But I don't think it's going to be necessarily worse. If anything, that could be slightly positive, because it would be more focusing on the economic side, rather than the more wider range of issues for China.

I think the other important country that could be impacted is Mexico. Because in the past, there was a lot of, again, rhetoric talking about Mexico. But we believe that this time, maybe what is different is that maybe there would be more important countries to discuss for Trump. So, yes, he has the issues in Ukraine, and he has issues with China. And so, hopefully, Mexico will be a little bit less in the spotlight. So, that may not be as negative. But I think that's something to follow. Because before the election, we may see some kind of volatility around Mexico. And that could be, again, as Polina mentioned, often it's an opportunity (a buying opportunity).

So, yes, that's what I would say on the US election. But I think that could really create some severe volatility for our countries around that time.

Thanks, Laurence. We actually have a specific question for you. Are there any specific emerging market industries or themes that you're excited about heading into the new year?

Yes, there's a lot going on, for sure. And we like very much looking at themes as a way of investing in the asset class, because there's so much going on in terms of geopolitical, so much volatility that we like identifying some kind of a theme that's going to play out over the next few years independently of what's going on, on the top-down, or on the macro.

So, clearly, one of the same – and I know, it's not very new, but the AI theme and the technology is something that we've done quite a lot of work. It's done very well. So, I think it's maybe due a little bit of a pause this year, or at the beginning of the year, at least. But really, in EM, you have some of the best companies really in the world, not only in technology, but just in the world are in emerging markets in Korea and Taiwan. And I think they really deserve to have a lot more attention. And I think they've been punished a little bit because of the asset class itself. So, I think that's a topic and a sector we still really like.

And the other one we really like, and that's again being long-term, is domestic consumption. Sometimes we forget about it a little bit. But emerging markets is all about the superior growth, urbanization, domestic consumption. People are really keen on consuming. When the confidence is there, at least, but in some countries, such as India, Indonesia, it is there. So, it's, again, a sector where we see interesting opportunities.

Thanks, Laurence. And this one's for the both of you. And I think it's a great wrap-up question as we're approaching time. We've talked through a lot of headwinds and tailwinds facing emerging markets today. Do you both have any final thoughts on what investors should consider when investing in emerging markets? Maybe we'll start with Polina first.

Well, firstly, if you think about China, I think that the first consideration is there are different ways to approach China depending on how cautious you are in China. But I also think that one point which we haven't mentioned is the fact that investors look to geopolitics as the, if you will, narrative behind the future for China. But I think what is also important to monitor is the tone China is setting as one of the key funders of emerging market countries.

Let's not forget that nowadays it's the largest creditor to most emerging market countries, especially in the global south. And those countries are currently going through reprofiling of their debt. And China, if you will, playing ball and accepting the rules of engagement of the Western world would go a long way now, in my view, in demonstrating how China is likely to behave going forward on the geopolitical arena as well. So, that, if you will, is a safer way to have a bit of a preview over the next few months of how the China rhetoric is likely to evolve.

Now, the second point that I would mention is that if we think about this year, this year, to some degree, feels like a repeat of last year. We started with the same expectations at some stage, if you will, the rate cuts would materialize and at some stage, we'll see the reduction in default. We now have much more visibility on the timing than we had a year ago. But in a way, the valuations haven't corrected as much. And therefore, to me, the key this year is to differentiate between strong tailwinds, fundamental tailwinds that we've highlighted, being the fiscal support, being the growth narrative, being the cutting cycle that emerging market policymakers have started against –that would lead to a lower default rate, which has materialized already last year and is likely to materialize this year, in our view – against noise. And there is a lot of noise about elections, there's a lot of noise about geopolitics, and that creates volatility.

Now, if you, like us, are convinced on the fundamental backdrop, then you use that volatility to add risk. And so, that's how we are approaching investing in emerging market fixed income this year.

And the very last point that I would say is that emerging market fixed income and emerging market equity are very complementary segments within emerging markets because we have different composition. You have almost four times more countries in emerging market fixed income, but they are different countries with different allocation, bigger allocation to EMEA and LATAM regions. You have different sectors. Again, more export-oriented sectors in the fixed income compared to AI and fuel, the sectors of the future in the equity side. And I do think that when investors think about the concept of balanced portfolios, that's not something to disregard in today's world, because valuations actually look quite attractive on both equity and fixed income, but you're not doubling down on EM risk if you're looking at the approach to invest in both.

Thank you.

Laurence, any final thoughts on your end?

I cannot say better than Polina, but I think it's a unique opportunity. I think the positioning in EM, at least on the equity side, is really one of the lowest it's ever been. I think some people have given up on the asset class. And I understand that China is a bit unsettling. There's a lot of question marks about the country. But again, I think the country has achieved so much that I feel confident that they will do the right thing in the way to continue to grow, and that would benefit equity investors.

And so many other stories are really good. And it's a shame because I think that's been overlooked over the past few years. And I feel like it's about time that changes. So, yes, quite positive for the next 10 years in EM.

Excellent. With that, it looks like we'll bring the webinar to a close. I'd like to thank both Laurence and Polina for allowing me to host once again, and certainly for sharing their insights.

And of course, for more insights from Laurence and Polina and their respective teams, please visit rbcgam.com or click on the links on your screen.

We hope you enjoyed today's discussion, and we'll follow up with an email which will include the video replay.

Thank you to everyone that participated with the questions that you submitted and hope everyone has a great rest of the day.

Thank you.