As we move into 2025, the outlook for emerging market (EM) corporate high-yield default rates is signaling strong improvement and greater stability. We expect a default rate of around 2.7% for the year, which would be below the long-term average of 3.4%, and down from 2024’s 3.4%. The improvement reflects more benign conditions than those experienced during earlier phases of the Russia-Ukraine war and the initial China property sector weakness of 2022 – 23.
Last year, regional- and sector-specific challenges shaped the default landscape, with Asia leading default activity. China’s property sector accounted for nearly half of all defaults, driven by prolonged structural pressures. However, stabilization in other regions helped mitigate the broader impact. Latin America’s defaults were concentrated in the transport and financial sectors, while Central and Eastern Europe, the Middle East and Africa (CEEMEA) experienced relatively low distressed activity. Notably, over 60% of last year’s defaults were repeat occurrences, highlighting the challenge of restructuring in stressed markets.
Improved Backdrop
Our expectation of a decline in the EM high-yield default rate for 2025 reflects a significantly improved economic and market backdrop. While Asia remains a more challenging region, with a forecasted default rate of 4.5%, both CEEMEA and Latin America could see default rates of 2.0% and 1.3%, respectively, well below their historical averages, supporting our generally positive outlook. These lower default rate estimates reflect healthier corporate fundamentals in many countries and sectors, supported by improving balance sheets, upward rating trends and access to cheaper funding in local refinancing channels.
China’s property market continues to face headwinds, with physical property sales remaining tepid. Meanwhile, rising stress in Hong Kong’s property sector warrants attention, although worsening defaults there are not our base case for 2025. More favorable legal restructuring frameworks and fewer stress cases suggest better potential outcomes, should there be restructurings, than those in the China property sector in 2022 – 24. In Latin America, many stress cases have already played out in recent years, leaving the corporate universe on a firmer footing. In CEEMEA, a couple of idiosyncratic issues are present, but overall stress remains very low.
Looking ahead, we see the outlook as constructive. Our expectation for the 2025 default rate would be the lowest since 2019, reflecting a corporate credit universe that appears undervalued and underappreciated. While some distress persists, the overall decline in default rates—particularly compared to elevated levels in 2022 – 2023—suggests what we believe will be a more stable and attractive environment for EM high-yield investors.
The EM Corporate Default Picture Continues to Improve
EM High-Yield Corporate Default Rates
Source: JP Morgan historical data (2008 – 24) and Neuberger Berman estimates (2025). Excludes quasi-sovereigns.
