As government bonds from the US to Japan tumble amid energy-driven inflation and fiscal concerns, funds run by JPMorgan Asset Management and BlackRock Inc. are finding an edge in emerging markets (EM). Local-currency EM bonds have returned over 3% this year, outperforming US Treasuries and European peers, which have lost 0.6%, according to Bloomberg data. "It speaks to the asset class's resilience," said Elina Theodorakopoulou, portfolio manager at Manulife Investment Management.

EM central banks have more policy flexibility, with inflation averaging 3.8% — roughly a third of 2022 levels. JPMorgan estimates policymakers have about one percentage point more cushion than four years ago. Brazil, Turkey, and Hungary cut rates in August, while South Korea and the Philippines tightened. Chris Kushlis, chief EM macro strategist at T. Rowe Price, favors local-currency bonds in Brazil, Hungary, Mexico, and South Africa.

Michel Aubenas, BlackRock's chief of EM debt, targets bonds where central banks may surprise by holding rates steady. BlackRock and Societe Generale favor Czech markets, expecting the central bank to hold at 3.75%. Juan Orts at Soc Gen calls Polish rate-hike bets overblown. Pierre-Yves Bareau at JPMorgan notes markets price excessive tightening. Historical patterns support EM debt during Fed tightening driven by growth; EM growth is steady near 3.7%, aiding fiscal positions in Argentina, Ghana, and Nigeria.