Emerging markets are vulnerable to capital outflows, currency depreciation and tightened financing conditions when global shocks hit. But emerging market companies with balanced capital structures and good liquidity have absorbed a wave of shocks in recent years and preserved their credit quality, differentiating themselves from peers without such buffers. Divergence in companies’ credit quality will likely become even more pronounced this year as knock-on effects from the Middle East conflict reverberate across the globe.

» Emerging market companies face a more difficult credit environment in 2026.
Heightened geopolitical tensions, increased oil price volatility, security risks affecting the Gulf Cooperation Council, and renewed disruptions to global shipping and supply chains are likely to weigh on companies following two years of credit quality improvements. Additionally, cyclical downturns in key sectors will continue to cause strain, while a weakening of a country’s economic, institutional, financial or political environment can exert additional pressure on companies operating there. Still, many companies have levers they can pull to navigate these stresses.

» Company-specific decisions are critical to credit outcomes.
Financial policy, governance and liquidity management were the primary drivers of credit quality changes significant enough to move ratings for emerging market companies in 2025 and early 2026. These drivers, which are largely within managements’ control, account for around half of the rating upgrades and nearly two-thirds of the downgrades across emerging markets during this period. Changes in sovereign credit quality or shifts in sector conditions – factors outside companies’ control – account for a smaller share.

» Sovereign influence remains a binding anchor for credit quality in some cases.
Of the roughly 400 companies we rate across emerging markets, only about 10% are rated above their sovereigns’ ratings. Sovereigns and companies in a given country are exposed to the same macroeconomic and financial-market conditions, and a weakening of sovereign creditworthiness can cause financial distress across sectors through a range of channels. We only occasionally rate companies above their respective sovereigns, regardless of the companies’ own standalone credit strength.