Emerging markets have weathered a turbulent start to the year, absorbing the impact of ongoing conflicts, crude prices hovering near $100 per barrel, and climbing US Treasury yields. Despite growing fears that the Federal Reserve may raise interest rates, investors continue to bet on the persistence of the rally in these assets.

The latest surge in oil prices, combined with stronger-than-expected US inflation data released last Friday, has solidified the case for a Fed rate hike this week, putting pressure on emerging market assets. Yet, many fund managers remain undeterred, pointing to improved policy credibility across several emerging economies, robust corporate earnings, and, crucially, a limited risk of a sharp dollar rally. Historically, a strong US dollar has been a primary source of strain for these markets.

"I don't see any red flags flashing for emerging markets," said Benoit Anne, senior managing director at MFS Investment Management, adding that the prospect of a Fed rate increase is "not a big deal" for the asset class. He noted that, unlike past tightening cycles, concerns over US policy credibility are actually weighing on the dollar, which "in my view, would mitigate the potential shock to emerging markets." Anne expresses optimism for local-currency bonds in South Africa, Colombia, and Hungary.