Emerging market (EM) debt in February 2023 was weaker as strong global economic activity prompted markets to price in higher terminal rates. The shift in valuations also factored in a slowing disinflation pace and a renewal of US dollar strength. Inflation prints in the month were generally higher than initial expectations, especially in EM Asia. Most EM economies are now more exposed to extended tightening cycles, with a timeframe for rate cuts pushed further out. The momentum shift in terminal rate expectations, coupled with increased volatility in rates, dampened the year-to-date returns in EM markets. Investor risk appetite was curtailed amid geopolitical tensions. Potential resolutions pertaining to Russia’s invasion of Ukraine are still ambiguous as the conflict reached its first anniversary. US-China tensions escalated further following comments from US Secretary of State Antony Blinken on China’s military aid to Russia. Some uncertainty around when Turkey’s elections will take place has arisen following the tragic earthquake in the country. The US Non-Farm Payrolls (NFP) data remains a critical focus as a stronger-than-expected result for February could increase the likelihood of a 50 basis points (bps) hike by the Federal Reserve in March. New export orders observed in China helped address concerns around diminishing demand. During February 2023, net flows into EM hard currency and local currency funds were $0.1bn and $-1.1bn respectively. (Source: JP Morgan).